Lenders Pull Back Financing to Subprime Tiers in Favor of Prime, Experian Says | Auto Finance News | Auto Finance News

Lenders Pull Back Financing to Subprime Tiers in Favor of Prime, Experian Says

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New vehicle loans made to subprime and deep subprime consumers are decreasing as prime and superprime consumers are receiving the highest volume of new-vehicle funding they have received since 2012, according to Experian’s first quarter State of the Automotive Finance Market report.

Specifically, subprime and deep subprime consumers received a 22.5% fewer new-vehicles loans in the first quarter compared with the same period the year prior. The percentage of subprime shrank to 18.7% of loan balances compared with 19.7% the comparable period.

Meanwhile, prime and superprime consumers increased their share of total loan balances to 63.8% compared with 61.4% in 1Q17, which could serve as an indication that lenders have become more risk-averse. The percentage is even higher when isolating new-vehicle sales with 73.4% of those loans going to the two highest credit tiers.

However, according to Melinda Zabritski, Experian’s senior director of automotive financial solutions, credit standards could loosen. The percentage of 30-day delinquencies have dropped to 1.90% compared with 1.96% the same period the year prior, while 60-day delinquencies have remained flat at 0.67%.

“As delinquencies drop, lenders may start to extend loans to higher risk segments – which can open up the opportunity for a larger population to purchase vehicles,” Zabritski told Auto Finance News. “That said, it’s important to maintain underwriting standards such as advances, payment-to-income and debt-to-income ratios.”

Experian attributes these trends to a rise in loan amounts and monthly payments. In 1Q 2018, average new-vehicle loans hit $31,455, an increase of $921 from the year prior. Additionally, monthly payments for a new vehicle climbed to $523, a $15 increase over the same period. The average interest rate for a new vehicle was 5.17% during the quarter.

To download the full report, click here.

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