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Automotive Subprime Lending Down in Q1

Banks, finance companies cut back 9.5% in first quarter.

by on May.08, 2018

Banks and finance companies are tightening their belts when it comes to lending to subprime buyers.

With predictions about new vehicle sales for 2018 hovering at or just below 17 million units, it appears that banks and finance companies may be inadvertently impacting that sales total with their current lending practices.

According to Equifax, subprime lending is down nearly double digits through the first quarter of the year.

Dig Deeper!

Reports show that 386,500 auto loans and leases have been originated YTD to consumers with a credit score below 620, which is generally considered subprime. This is a 9.5% decrease from the year-ago period. 

These newly-issued loans have a corresponding total balance of $6.9 billion, a 9.4% decrease year-over-year. In the first quarter, 19.2% of auto loans and leases were issued to consumers with a subprime credit score. This is the lowest subprime share since 2006. In 2017, the YTD share was 20.3%.

(One in five Americans want an electric vehicle. Click Here for the story.) 

Sales to subprime buyers are off 9.5% in the first quarter of this year.

The average origination balance for all auto loans and leases issued in January 2018 was $22,205. This is a 3.5% increase over January 2017. The average subprime loan amount was $18,128. This is a 1.4% increase compared to January 2017.

Equifax notes 2017 marked the third-highest year on record for the number of auto accounts originated. 2016 is the record holder, followed by 2015. This year is expected to be below last year.

The amount they’re lending is down as well. Total 2.01 million auto loans and leases, totaling $44.1 billion, have been originated year-to-date. This is a 4.1% decrease in accounts and a 2% decline in balances over this time last year.

(Click Here for more about the daily commute drivers say they want.)

“It is evident that banks, captives and lenders are focused on reducing their exposure to subprime accounts in automotive, but with the economy at healthy levels, there is also a smaller pool of subprime candidates shopping for vehicles compared with several years ago,” said Gunnar Blix, Deputy Chief Economist at Equifax.

“There seemed to be more of a focus on pursuing subprime volume in 2017, and today lenders are looking to pull back a little and find more balance in their portfolios.”

Leasing figures are down even more than sales of vehicles to new buyers with subprime credit.

Leasing is being hit even harder in 2018, which has 256,510 auto leases, totaling $4.2 billion, originated year-to-date. This represents a 17.1% decrease in accounts and a 17.4% decrease in balances, from this time last year. Auto leases accounted for 12.7% of all auto accounts originated through January, and 9.5% of balances.

(To see more about tough sales results in April, Click Here.)

Further 24,920 auto leases have been originated YTD to consumers with a credit score below 620: a 13.5% decrease from January 2017. These newly-issued leases have a corresponding total balance of $429 million, a 13.2% decrease year-over-year. Through March, 9.7% of auto leases were issued to consumers with a subprime credit score. In 2017, for the same period the share was 9.3%.

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One Response to “Automotive Subprime Lending Down in Q1”

  1. JAE says:

    For the subprime lenders, are there any figures stating the average interest rate, average loan length and make/model of the borrower? Also, data on percentage of defaults, when the default occurs (ex. default occurred on average 12 months into the loan, 35 months), was there an early pay-off?

    Another would be what additional monies, if any, did the subprimer use for the down payment. With the loan amounts being $18K range, it ties in to the vehicle they obtained – did they only have say $2K in cash to put down on a vehicle so they bought a bottom basement new(er) vehicle or an over 5-yr old vehicle. And whether these monies came from other sources, say a HELOC, credit card(s).