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Auto Loan Market Shifting Toward Less Risky Consumers

November 21, 2017

CHICAGO — For the fourth consecutive quarter, auto loan originations decreased on a year-over-year basis in the second quarter. According to TransUnion, the 2.2% decline in originations was driven a 5.9% drop in subprime, nearprime, and prime loan originations.

The decline, however, was partially offset by a 3.2% increase in loans originated to the least risky consumers in the prime-plus and superprime risk tiers over the same period. As a result, 2.3 points of market share have shifted from subprime, nearprime, and prime to the prime-plus and superprime tiers.

“The recent decline in originations is due to the tightening of underwriting requirements and the slowing demand for new vehicles,” said Brian Landau, senior vice president and automotive business leader at TransUnion. “Despite fewer originations, there is evidence that more people will be opening auto loans in the near term.”

The evidence Landau was referring to is the increase in U.S. light vehicle sales in September, the first increase recorded this year. Additionally, demand for new vehicles as a result of the hurricanes in Florida and Texas is likely to result in a few thousand additional units sold this year, he added.

Overall loan balances in the third quarter grew 5.8% compared to a year ago. However, the rate of growth slowed to its lowest level since the third quarter of 2012. And as balance growth slowed, serious auto loan delinquency rates (60-plus day delinquent) have risen seven basis point in the last year to 1.40%.

“Through serious auto loan delinquency rates are slowly rising, we still do not believe this is a cause for concern,” Landau said. “The recent uptick in delinquencies was driven primarily by ‘relaxed’ underwriting standards from recent year, which drove nonprime origination growth.”

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