Subprime Auto Loans Rise Since Financial Crisis
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UPDATED: Sep 19, 2011
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September 19, 2011 – A borrower’s poor credit score might no longer keep him or her from getting a new or used car loan. After becoming more cautious as a result of the financial crisis of 2008, auto lenders are now showing that they are more willing to lend to subprime borrowers.
On Tuesday, August 30, Experian Automotive announced the results of its study on auto lending in the second quarter of 2011. The study reported that the rate for subprime new vehicle loans increased by 22.4 percent from 2010, from 18.21 percent to 22.29 percent.
“Even with a tepid economic recovery in the first half of the year, automotive lenders were willing to increase their level of risk,” Experian Automotive Director of Automotive Credit Melinda Zabritski said in a press release. “This was good news for automotive manufacturers, as nearly half of all consumers fall into non-prime, subprime and deep subprime risk categories. Providing loans to these risk tiers opens the market to significantly more prospects.”
The area that saw the greatest increase was in new car loans for borrowers in the highest risk category, deep subprime, which soared 44.1 percent from 1.48 to 2.13 percent. In addition, the average credit score for both new and used auto loan borrowers decreased by an average of 8-10 points and the average time period for loan repayment extended by one month.
Overall, the total percent of subprime auto loans made in this last quarter was 40.8 percent, up from 37.2 percent at this time last year. In 2007, before the financial crisis, this rate was 46.2 percent.
This recent increase, Experian Automotive experts suggest, marks an increase in the risk lenders are willing to take on auto loans to increase their business – especially in a lagging economy. Some experts also suggest that auto loans are easier to grant to subprime borrowers because repossessing a vehicle is much easier than foreclosing a home.