The prime and super-prime loans that account for more than 60% of all outstanding auto loans will likely spur a decline in delinquency rates later this year, said Melinda Zabritski, Experian’s senior director of automotive financial solutions.
“If the loan is going to go bad, it’ll occur typically around 16 to 18 months in, so a lot of the delinquencies we see today are loans that originated a year and a half or two years ago,” Zabritski said. “But over the past year or so, we really reduced subprime originations, and if we take that next step forward, we can say the loans we’ve been putting on the books for the past year should have lower rates of delinquencies.”
In fact, Experian’s fourth-quarter 2018 State of the Automotive Finance Market report showed that 30-day delinquencies had dropped 40 basis points to 2.32%, year over year. Meanwhile, 60-day delinquencies inched up 2 basis points to 0.78%.
While vehicle affordability and delinquent loan volume continue to make headlines, fresh data from the report, published last week, suggests these trends are less serious than they may seem. The differing outlooks may stem from discrepancies in data analysis methodology, Zabritski said.
For example, Experian counts a delinquent account as a single instance of delinquency, while other analysts may consider each month a loan payment is late as an instance of delinquency. “It’s the difference of whether you’re looking at the actual consumer who went delinquent or you could be counting instances,” she said, adding that in latter scenario, an open loan that was delinquent in October, November, and December may be counted by some as three instances of delinquency in a single quarter.
With prime loans or higher accounting for 62% of all open fourth-quarter automotive loans, and nonprime loans comprising 18%, subprime loans still remain about 20%. “Looking at everything, there’s still a pretty good balance,” Zabritski said, noting that recent originations have been more heavily weighted in the prime portion of the market.
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