Smart Borrower Blog

Subprime Auto Loans Garnering Investors Again

Jun 6th, 2012 @ 9:53 PM by Amber Nelson

Amid many flailing parts of the economy, the U.S. car loan industry is flourishing, a fact that has helped to once again open up the lending spigots for borrowers with less-than-perfect credit.

A new report from Experian Automotive, a division of the Experian credit bureau, says that auto loans to nonprime, subprime, and deep-subprime buyers increased 11.4 percent in the first quarter of this year from the previous year.

At the same time, loan delinquencies fell with 30-day delinquencies dropping 7.6 percent in the first quarter and 60-day delinquencies plunging 12.1 percent.

That combination bodes well for investors, who have dramatically increased their purchases of subprime auto loan-backed securities. These loan promise big dividends as borrowers with “deep subprime” credit scores – those below 550 – paid an average of 17.9 percent interest on used-car loans during the first quarter, according to Experian. Average car payments also rose slightly for subprime loans, with deep subprime customers paying an average of $356 a month for a used-car loan in the first quarter, up from $351 during 2011’s first three months.

As a result of low default rates and high interest rates, investors bought $5.8 billion in subprime auto securities in the first quarter, up from $3.5 billion the year before.

“Our report shows automotive lending is as healthy as it’s been since the market bottomed out in 2008,” said Melinda Zabritski, director of automotive credit for Experian in a press release. “With consumers doing a good job of paying back loans on time and the percentage of dollars at risk reaching its lowest point in six years, lenders are able to extend terms and provide lower rates. This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers.”

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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