As the economy has improved, lenders are increasingly giving auto loans to consumers with low credit scores.
In a review of second-quarter automobile financing, credit bureau Experian outlined year-over-year changes in the market. Overall, outstanding loan balances increased $69 billion from the second quarter of 2012 to about $751 billion.
When looking at the year-over-year risk distribution of the loans that originated in the second quarter, it seems lenders are more frequently approving financing for higher-risk customers.
Though they account for only a sliver of financing on new cars (3.03%), deep subprime loans increased 19.2%. Subprime loans increased 10.63% and make up 10.38% of new loans; nonprime loans increased 4.11%, accounting for 14.04% of new loans.
While new prime and super prime loans decreased slightly, they still make up the majority of new lending. Prime loans make up 14.46% of new financing, and super prime loans account for 58.09%.
Used-vehicle financing followed a similar pattern, with an increase in deep subprime, subprime and nonprime loans, and a decrease in prime and super prime loans. Subprime loans saw the largest increase — up 2.55% — and super prime loans decreased the most — down 2.48%.
A Seven-Year Low
These changes in loan risk distribution coincided with a seven-year low in auto repossessions and 30-day delinquencies.
“Consumers are doing a great job of keeping those loans current,” said Melinda Zabritski, senior director of Automotive Credit for Experian. “A better job than what we saw even pre-recession.”
In fact, the average credit score on a new car loan is lower than it was in the second quarter of 2007. This year, it was 749, down four points from last year and a large change from the peak of 774 in 2009. In 2007, it was 753.
Though not at a seven-year low, the average credit score for someone financing a used car is also down year-over-year, to 660 from 662. That metric peaked in 2010 at 679.
Before getting an auto loan, it’s important to check your credit and get your free credit score using a tool like Credit.com’s Credit Report Card. A higher credit score translates into a lower interest rate on the loan.
Image: iStockphoto
You Might Also Like
Getting a new car is a big decision, and you should choose your n... Read More
October 20, 2020
Auto Loans
According to the Consumer Financial Protection Bureau, around 2.3... Read More
July 20, 2020
Auto Loans