Nonprime Originations Shrink Despite a Rise in Portfolio Balances | Auto Finance News | Auto Finance News

Nonprime Originations Shrink Despite a Rise in Portfolio Balances

  • Nicole Casperson
  • June 5, 2018
  • Strategy

© Can Stock Photo / gina_sanders

Nonprime portfolio balances increased year-over-year to $34.6 billion at yearend 2017, yet the number of loans originated during that time decreased, according to data from the 2018 Nonprime Automotive Finance Survey.

Balances grew by 5.3% year-over-year in 2017 for the seventh consecutive increase for the 40 nonprime lenders surveyed. However, the number of loans originated dropped by 11.8% from 2016 to 2017, compared with a 1.8% drop from 2015 to 2016, according to the survey.

With the average amount financed going up and the length of loan terms getting longer, the data shows new people are applying for vehicles every year, “so those balances are going up, but at the same time there are fewer people financing vehicles,” Ben Werner, director of solution marketing at FICO told Auto Finance News. “Financial metrics are mixed to weak in some areas,”

Werner attributes the trend of lower originations and higher balances to greater competition, tightened credit standards, higher financing rates, and efforts to improve operational efficiencies and reduce fraud. However, Werner said this is not a universal trend — some financing sources reported year-over-year portfolio growth of over 30%.

The National Automotive Finance Association and American Financial Services Association generated the report in collaboration with FICO, TransUnion, IHS Markit and Black Book.

Further data from the report includes:

  • Automated origination activity is increasing.
  • Rise in dealer, first-party and synthetic identification fraud.
  • Used-vehicle depreciation was mitigated by destructive hurricanes, which increased the demand for used vehicles.
  • The customers of nonprime auto finance companies represent mainstream America.

To order the full report, click here.

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