Tightening credit standards to slow auto growth | Auto Finance News | Auto Finance News

Tightening credit standards to slow auto growth

Tightening lending standards from auto finance companies, interest rates and rising vehicle prices are poised to reduce total outstandings about 5% through 2020 and 2021, according to Moody’s Analytics U.S. Consumer Credit Outlook.

In fact, finance companies have stiffened underwriting guidelines due to deterioration in credit performance, which has allowed banks and credit unions to take the lead on new originations. A majority of those new loans are being originated to middle-aged, high-income borrowers with an appetite for 60-month loan terms.

Lender pullback and credit tightening, however, have stabilized the overall default rate, especially for borrowers with higher risk, Moody’s data shows. Still, the default rate for borrowers with credit scores ranging from 580 to 699 continues to increase.

Looking forward, Moody’s is eyeing low-income borrowers with short-term loans as a potential risk to the health of the auto market. The credit-rating agency also is on the lookout for an increase in defaults from subprime borrowers in auto leases.

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