Experian Says Subprime Car Loans More Common
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UPDATED: Feb 9, 2021
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Despite the ongoing unstable economy, both new and used car ownership has increased. A major reason for this trend is that buyers are now able to find obtainable loans.
By relaxing their credit requirements in the first quarter of 2012, auto lenders were able to provide loans to borrowers with subprime credit scores, cut interest rates, and extend loan terms so that repayment would be easier for new borrowers.
According to Experian’s May 2012 report, the amount of new subprime car loans increased by 11.4 percent in this year’s first quarter when compared to 2011’s, bringing the average credit scores for consumers buying a vehicle to near pre-recessionary levels.
Marks of less than 680 are categorized as subprime by Experian. The average credit score for borrowers buying new cars fell to 760. Used-car buyer analysis showed that the average borrower’s score dropped four points within the subprime range to 659.
“This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers,” said Melinda Zabritisk, director of automotive credit for Experian, according to Reuters.
As a result of this uptick in originated subprime loans, the average monthly payment on car loans saw an increase of roughly $3 for both new and used cars since borrowers are agreeing to longer terms.
In fact, the average number of months that car loans were taken out for increased by one month for both new and used cars. More than 9 percent of used-car loans were scheduled for a term of more than six years.
Additionally, average interest rates fell by 0.27 percent to 4.56 percent for new cars, and by 0.06 percent to 9.02 percent for used cars.
Lenders are able to cater to subprime borrowers since compared to mortgages and credit cards these borrowers prioritize their car payments over other bills in order to ensure they have transportation to workplaces, campuses, interviews and stores.