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Experian: Financing Extended to Subprime Car Buyers Declines to Record Lows in Q3

December 5, 2016

SCHAUMBURG, Ill. — The automotive finance market once again squashed fears of a subprime auto loan bubble in the third quarter, with financing extended to consumers with subprime credit falling 4.5% compared to a year ago, according to Experian Automotive.

Auto financing extended to car buyers with deep-subprime credit also fell, declining 2.8% from a year ago to the lowest level since 2011, the firm stated. 

“For anyone making doomsday predictions about a subprime bubble in the auto industry, Q3 2016 provides a stark reality check,” said Melinda Zabritski, Experian Automotive’s senior director of automotive finance. “This quarter’s report shows that lenders are reducing the percentage of loans to the subprime and deep-subprime risk tiers while increasing the percentage to consumers with good credit.”

Looking at the used market specifically, the subprime sectors saw even larger declines. Loans to consumers with deep-subprime credit were down to 5.11%, the lowest level recorded by Experian since the firm began tracking data in 2007.

On the other side of the spectrum, the number of newly originated loans to prime borrowers went up 2% and accounted for about 60% of auto loans originated in the third quarter, according to the firm. Also on the rise were average credit scores for both new and used vehicle loans, the firm added.

During the third quarter, the average credit score for new-vehicle loans rose two points to 712; for used vehicles the average credit score increaded five points to 655. Thirty day-delinquencies were flat compared to the same time last year, however, 60-day loan delinquencies were up slightly at 0.74%.

“The most important takeaway here is to understand the market reality and not to be led astray by rumors or unsubstantiated facts,” Zabritski said. “By doing so, lenders, dealers and consumers are able to make smarter decisions and more easily explore financing programs and other opportunities available to them.”

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