Experian Automotive, the leading global information services company, recently found that subprime auto lending “has continued to show steady growth and remarkable stability.”
Contrary to popular belief, subprime and special finance auto leads do not significantly hurt the status of other auto dealer leads or the economy as a whole.
While many are concerned about the status of the auto lender industry and how it may cause the next recession, the reality is that it is far too small to do any real damage to the economy. Unlike the housing market, there is no auto lending bubble to pop. When it comes to subprime leads, the risk is even lower.
Experian says that 30-day subprime delinquencies only rose slightly from last year, from 2.19% to 2.22% of all auto loans. New and used car leads fell to 22.8% from 23.3% this year as well, including both subprime and deep subprime loans.
How The Car Industry Is Changing
As the entire car lending industry continues to grow, dealers should not be concerned about the status of auto dealer leads for poor-credit buyers.
Melinda Zabritski, senior director of product marketing at Experian, says that subprime loans are not outpacing the entire market, just keeping up with it, which is healthy and to be expected.
“The subprime loans have actually dropped as a percentage of the total market,” says Zabritski. “That, combined with only a slight uptick in delinquencies, makes clear that the sky is not falling.”
Between May 2014 and May 2016, average car loan interest rates increased from 4.13% to 4.25%. In two years’ time, this should not be concerning either. Americans have been taking longer to pay off their auto loans. And while longer payment periods result in more interest, people are willing to take their time to pay off their vehicles. The majority of them are not defaulting on their loans.
Joy Wilder Lybeer, the senior vice president for the financial services group at Equifax, said that one in three auto loans are issued to subprime borrowers. Additionally, she also says that subprime borrowers are paying their loans at higher rates than prime borrowers.
As people continue to pay off their loans, their credit scores become more stable. Providing subprime loans to those in need will not only allow them to purchase a vehicle from your dealership, but it will also help the buyers pay off their loans steadily to improve their credit scores.
