Subprime Borrowers Getting Fewer New-Car Loans

Customers with subprime credit face a double whammy, suffering more than others from pandemic-related job losses and failing to qualify for the best new-car incentives, J.D. Power says.

“The decline in share of subprime is not because they can’t get access to credit,” says Thomas King, president of the J.D. Power Data & Analytics Div. and chief product officer, in a webinar this week.

However, customers with subprime credit accounted for just 8% of new-vehicle loans in the week ended May 10, down from 12% in the first three weeks of March, before COVID-19 social distancing and business shutdowns took effect, J.D. Power says.

Conversely, market share has increased for customers with the best credit histories, to 57% of new-vehicle loans for credit scores 740 and above for the week ending May 10, up from 52% for the week ending March 22, according to J.D. Power data.

In the same time frame, the average credit score for new-vehicle loans increased to 749 from 736. Zero-percent loans motivated many buyers in April and May, but only high-scoring borrowers could qualify, King says.

Interest rates actually have improved for customers with subprime credit, but they’re still a lot higher than zero. For the week ended May 10, the average new-vehicle rate for customers with credit scores below 620 was 13%, down from 14.2% for the week ended March 15.

“Folks with lower incomes … are experiencing some of the most severe income disruptions,” King says. “They are not coming back to market as quickly.”