Auto Sub-Prime Loans Reach Lowest Level In 11 Years

Car Loan Delinquencies Flash Credit Warning?

A new report has revealed that auto sub-prime loans have reached their lowest level in 11 years.

According to Experian’s Q3 2018 State of the Automotive Finance Market report, sub-prime and deep sub-prime lending comprised 21.19 percent of the market, down 1.5 percent from a year ago. The decrease is mostly due to high growth rates in lower-risk segments, specifically the used vehicle category. In fact, for the first time since Q3 2010, more than 50 percent of the used market is made up of prime and super-prime borrowers.

In addition, loans for sub-prime consumers made up the lowest percentage (22.86) of the used vehicle loan market, while loans for deep sub-prime borrowers hit an all-time low of 4.33 percent.

“The automotive finance market, like many other industries, is cyclical. So, while the percentage of sub-prime loans has reached historically low levels, the trend isn’t entirely unprecedented,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions, in a press release. “A shift in market share can be attributed to many factors, including an improvement in consumer credit behavior and vehicle affordability. Lenders need to pay close attention to these trends so they can make the right decisions and adjust risk management strategies accordingly.”

The report also showed that the monthly payments for new and used vehicles reached record highs, while the gap between new and used monthly payments widened. The average interest rate for a new vehicle loan was 5.73 percent in Q3 2018, an increase from 5.10 percent in Q3 2017, while the average interest rate for a used vehicle loan was 9.03 percent, up from 8.72 percent.

“Many car shoppers base their decision on monthly payment. And with such a sizeable difference between new and used monthly payments, some consumers may opt for the less expensive vehicle,” Zabritski added. “We believe every consumer deserves access to an affordable vehicle. Lenders need to analyze the data and trends so they can offer appropriate financing options.”


Latest Insights: 

The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.


To Top