While the average loan balance for subprime credit score borrowers has been rising, analysis shows that the average loan amount generally rises with a borrower’s Equifax Risk Score. Instead of granting larger loans to the full spectrum of subprime borrowers, lenders have been keeping loan sizes the same — based on credit scores — while making more loans to borrowers whose credit scores show less risk. Loan sizes have become larger due to fewer high-risk borrowers receiving those smaller loan amounts today.
The traditional signposts of a subprime bubble — downgrades in loan performance, higher delinquency rates and increased charge-offs — are simply not evident. In fact, loans originated in 2010 and 2011 have enjoyed robust performance, partly because they originated during years of restrictive lending mandates. What’s more, 2014 vintage loans are experiencing very low early write-off rates compared to recent years for the same age.
Is subprime auto lending creating the next bubble? An analysis of the data fails to support this, showing instead that subprime auto lending is quite healthy. Check out the Equifax Economic Trends Commentary to learn more.
