All this talk about a subprime auto bubble bursting and lenders having short-term memory for lending to subprime borrowers is ever kept alive. Not until some data and numbers roll in and claim otherwise. This can be gathered from Experian’s State of the Automotive Finance Market report for the first quarter of 2017.
Melinda Zabritski, senior director of Experian Automotive Financial Solutions, wrote that the first quarter of 2017 represented a 10-year record low for subprime auto lending. Auto loans made to “subprime” and “deep-subprime” borrowers consisted 24.1% share of the overall auto finance market in 1Q17, down from 26.48% in the same period last year.
The decision of lenders to tighten credit in the subprime and deep-subprime segment can be traced to soaring delinquency rates seen the past quarters. During the subject quarter however the 30-day delinquency rate fell to 1.96% from 2.1% a year ago. Meanwhile, 1Q17 60-day delinquencies rose slightly to 0.67% from 0.61% in the first quarter of 2016.
“The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers,” Ms. Zabritski wrote.
A look at the average credit scores of those applying for used and new car loans during the relevant quarter reveals:
- There was an increase in the average credit score of customers applying for new vehicle loans to 717 from 712 a year ago.
- There was an increase in the average credit score of customers applying for used vehicle loans to 652 from 645 a year ago.
Creditworthiness by New, Old Vehicle Loans
The shift to customers deemed as more creditworthy is also evident in both new and used car loan segments.
During the first quarter of 2017, the share of loans made to super-prime borrowers rose to 29.12% compared to 27.4% in 1Q16.
It is also the only category among auto loan borrowers whose market share grew during the relevant quarter. Take a look at how all borrower categories fared during the relevant quarter:
|Category||1Q17 Market Share||1Q16 Market Share|
As to the used vehicle loan segment, the market share per creditworthiness is as follows:
- Borrowers with Super prime and prime credit combined to snatch 47.4% share of the market in 1Q17 compared with 43.99% in 1Q16.
- Borrowers with subprime and deep-subprime scores got together 31.27% market share in 1Q17, down from 1Q16’s 34.31%.
“The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles. Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today). Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs,” Ms. Zabritski explained.