Subprime Auto Loans on the Rise as All Balances See New High

Record sales of new cars and trucks are fueling new highs in auto loan balances.

U.S. auto loan balances surged 11.5 percent to reach $987 billion in the fourth quarter of 2015, according to Experian Automotive’s fourth quarter report. This marks the highest level on record since Experian began publicly tracking this data in 2006.
The growth in overall loan volume includes a bigger increase in subprime and deep-subprime loans to borrowers with below average credit, Experian said. In the fourth quarter of 2015, subprime and deep-subprime loans accounted for 20.8 percent of all open automotive loans, compared with 20.3 percent in Q4 2014.
“The boost in automotive sales has contributed to a strong quarter for all lender types across the industry,” said Melinda Zabritski, senior director of automotive finance for Experian. “That said, while loan balances continue to rise and funding may be more easily attainable, it is critically important for consumers to stay on top of their monthly payments to keep the automotive market running on all cylinders.”
Fears of an auto-loan bubble have not materialized into a big surge in delinquencies. However, there is an increases in borrowers being late by at least two months.
Experian found that 30-day delinquencies are down across the board, pushing the overall rate down to 2.57 percent from 2.62 percent a year ago. But 60-day delinquencies grew from 0.72 percent to 0.77 percent over the same time period.
All lender types saw increases in the percentage of loans that were 60 days delinquent with the exception of credit unions, which remained flat year over year. The percentage of loans that were 60 days delinquent, however, is still below the percentage in Q4 2007, when it was 0.8 percent.
The growth in balances was fueled primarily by finance companies and credit unions, which saw increases of 22.5 percent and 15.9 percent over Q4 2014, respectively. However, banks maintained the largest share of loan balances at approximately $337 billion, an increase of 7.6 percent over the prior year.

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