New Report – Lenders Underwriting More Subprime Auto Loans

According to a new report, buying a new or used vehicle has become easier for consumers with weaker credit scores as lending institutions across the U.S. have begun making more subprime auto loans.

Industry researcher Experian Automotive reports that the percentage of auto loans made to subprime borrowers during the second quarter rose from 37.2 percent to 40.8 percent year-to-year.

In 2007, before the economic downturn, 46.2 percent of auto loans were made to borrowers with subprime credit scores.

Auto loans are generally considered safer than some other types of loans because they are collateralized. The repossession process is also much easier and less costly than foreclosing on a home.

In an interview, Experian’s director of automotive credit Melinda Zabritski said, “We are continuing to see growth in subprime, both new and used, and loans are becoming looser.”

During the second quarter, the average credit scores for borrowers fell while the average loan term increased to 63 months for new car loans, up from 62 months. The average repayment term on used vehicle loans was 59 months.

Tougher underwriting practices, adopted in the wake of the 2008 credit meltdown, led to a decline in delinquencies and defaults on auto loans.

The report states, “For Q1 2011, automotive delinquency rates, as a percentage of balances, continue to show improvement in every performance range and are at the lowest level of any time during the past year. Year-over-year improvements of 16 percent, 25 percent and 29 percent were seen in the 30 to 59 days past due (DPD), the 60 to 89 DPD and the 90 to 180 DPD ranges, respectively.”

According to Experian, auto loans that were delinquent by 30 days accounted for only 2.59 percent of all outstanding loans during the second quarter, down from 2.89 percent a year earlier.

Zabritski said, “Even though we have growth in subprime of late, our delinquency rates right now are extremely low.  We have an overall stable market because we did have a lot of conservative lending in 2009 and 2010.”

In addition to delinquencies, repossessions have also declined from 0.62 percent of all outstanding auto loans to 0.59 percent.

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