No Bubble About to Burst on Subprime Loans, Experian Says
Lenders are making it easier for buyers at the bottom of the credit-rating pool to secure financing, but there’s no sign the industry is headed toward a repeat of 2009.
SAN FRANCISCO – Subprime loans are on the rise, but the auto industry isn’t headed toward a repeat of 2009’s financial crisis, say executives at credit-data tracker Experian.
“People are worried we’re creating a subprime bubble,” Melinda Zabritski, senior director, tells media at the 2015 NADA Convention and Exposition here. “But the data shows, we’re really deflating the bubble.”
While subprime lending is increasing, it still remains a small part of the auto-lending portfolio industry-wide. The lowest-rated buyers, known as Deep Subprime and averaging credit scores in the 300-500 range, account for only 0.70% of all new-vehicle loans. That’s up slightly from 0.66% in pre-recession 2008.
The next category up from the bottom, Subprime, with credit scores of 501-600, also is relatively flat at 10.08% of loans, compared with 9.00 six years ago.
The real growth, Zabritski says, is in the healthier Nonprime sector, with a credit rating of 601-660. That group now accounts for 17.42% of all new-vehicle loans, compared with 13.15% in 2008.
“We expect subprime to continue to grow,” Zabritski says. “But what’s really growing is Nonprime. So we’re confident the credit market will remain very stable.”
Experian says longer-term loans also are increasing, led primarily by credit unions and finance companies. Loans of 73-84 months account for 25.7% of all new-vehicle financing, up from 11.0% in 2008 and 9.6% in 2010. Loans 61-72 months in length have held stable, with a 40.3% share of the market, up only slightly from 39.5% in 2008.
Some 39.6% of new-vehicle loans from credit unions and 40.9% from finance companies are beyond 72 months in length. Only 18.3% of loans from captive-finance operations are of that duration, as automakers favor shorter-term contracts to keep buyers returning to the showroom.
The average loan term for all new-vehicle sales is 66 months, up from 62 six years ago. The amount buyers are financing also is increasing, to $28,200 last year, from $24,439 in 2008.
“The bottom line is loans are growing,” Zabritski says. “The market is becoming more extended.”
Experian also says:
Longer-term new-vehicle loans are keeping monthly payments stable, despite the rise in vehicle costs. The average payment reached $479 last year, up only $14 from 2008.
Buyers keep vehicles an average 96 months, up from about 88 in 2008, meaning ownership is matching the growing length of loan terms.
Interest rates are expected to rise, but for now the average new-vehicle loan rate remains a market driver at 4.56%, down from 6.30% six years ago.
Delinquencies of 60 days are up slightly to 0.74% of loans, from 0.68 in 2013. A higher percentage of Deep Subprime buyers – 11.49% – are delinquent.
Auto loans outstanding total $870 billion in third-quarter 2014, an all-time high. That compares with just $657 billion in 2012.
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