A new report from Experian Automotive has revealed lenders are offering borrowers more subprime auto loans. This is a noted reversal from the cautious approach they’d taken several years ago after losing money during the financial crisis.
Subprime Loans Make Up 40 Percent of All Loans
According to the industry research firm, which is a unit of credit bureau and research firm Experian Plc., the portion of car loans made to subprime borrowers rose to 40.8 percent in the second quarter of 2011. This is a marked increase over the 37.2 percent portion of loans made in the year prior.
According to the firm, the data shows lenders are now keen on boosting their loan books amid a sluggish U.S. economy. The likely reason for the increase in loan disbursement is that car loans are viewed as a safer lending option.
Loans are backed with collateral and cars can easily be repossessed if borrowers default. The process is not as easy for mortgage loans, which is why lenders are more willing to take risks with vehicles.
Average Credit Scores Have Declined
While lenders are willing to issue more subprime auto loans, it seems there are more subprime borrowers for them to issue these loans.
According to the Experian, the average credit scores for borrowers declined in the second quarter. Also, the firm said the average term for their loans extended by one month to 63 months on new cars and 59 months on used cars.
Melinda Zabritski, director of automotive credit for Experian, told CNBC in an interview, “We are continuing to see growth in subprime, both new and used, and loans are becoming looser.”
She went on to explain that despite the fact they’ve seen an increase in subprime lending, delinquency rates have rates have remained low, partly because lending standards were tighter over the past few years. “We have an overall stable market because we did have a lot of conservative lending in 2009 and 2010,” she said.
Experian said the five most frequent lenders of subprime mortgages are Ally Financial, Wells Fargo, Toyota, JPMorgan Chase & Co. and Honda.