Smart Borrower Blog

Subprime Auto Lending Grew in 3rd Quarter


Nov 21st, 2018 @ 2:07 PM by Amber Nelson


Originations of auto loans among borrowers with poor credit rose in the 2018 third quarter for the first time in over two years, according to the Federal Reserve Bank of New York.

The New York Fed’s “Household Debt and Credit Report found that total new subprime – those with credit scores below 620 – auto loans jumped to $32.6 billion, up 10% from the 2017 third quarter and was the biggest increase among any credit range.

Total car loan originations for all credit categories increased to $157.6 billion, up 5% from the year before. The average loan balance per customer grew to $18,835, up 1.4% from the previous year.
The category with the most originations is still those with the best credit scores – 760 or higher. Loans made to that group accounted for 31.7% of total car loans while subprime loans made up just 20.7%.

And yet, this is the first time that subprime auto loans have increased on a yearly basis since the second quarter of 2016, a noteworthy change.

While more borrowers with less-than-perfect credit are getting auto loans, it is also good to see that car loans across all categories are performing better, with only 1.36% of all loans delinquent in the third quarter, according to data from credit bureau TransUnion.

Perhaps part of that trend it that even those with poor credit have more financing choices these days. “Customers have other options. They can actually refinance if they want, extend the term out and give themselves a little bit of relief on their monthly payments,” says TransUnion Senior Vice President and Automotive Business Leader Brian Landau. “It’s important that the market provide that kind of awareness to consumers so that they can take the best options.”

And as more lenders turn to emerging technology to help them underwrite loans, even more lenders could start testing the subprime waters again.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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