There has been a boom in car leasing and financing in recent years, in part due to low-interest rates (despite the increase from 4.13% to 4.25% in May 2016) and low unemployment. American’s are taking more debt than ever, and spending more on cars than ever before.
There has also been an increase in subprime lending, which is a more profitable option for lenders. However, when you’re giving out loans you have to be careful, as there has been a recent increase in the number of defaults by these subprime leads.
This is according to the Federal Reserve Bank of New York.
But this isn’t a reason to be alarmed and stop giving out loans or generating leads for car loans. Overall, the delinquency rates on loans remain at a very low level by historical standards.
According to ABA’s Chief Economist, James Chessen, the increase in loan rates has not dramatically affected the auto finance leads market.
“Even with recent increases, auto delinquencies have remained remarkably low for the last five years amid booming car sales.”
The number one thing that experts, including Greg McBride, a senior analyst for Bankrate.com, suggest is that individuals who are either looking to deal in leads for car loans or are consumers looking to get a loan do their research. Research the loan, the client, and the terms.
Preventing a default is easy if you don’t have a loan you can’t afford at the start.
Subprime loans should only be given to those who are not a risk for loss or default but have bad credit. If they can demonstrate an ability to pay back the loan they are requesting, then granting it is a safe bet.
If they do not demonstrate that ability, then loaning to them should be avoided, both for the benefit of your company and the individual asking for a loan.
If you have questions regarding subprime loans, the impacts on the subprime loan market due to the changing car markets, or when it’s best to give out a loan, contact us. We’ll be happy to assist you.
