Subprime loan share is declining despite chatter around a subprime bubble, Experian said today in its second-quarter State of the Automotive Finance Market report.
Subprime and deep subprime share of new and used loans and leases dropped to 22.8 percent in the second quarter, compared with 23.3 percent a year ago.
Subprime borrowers still make up a substantial chunk of lenders’ portfolios, but lenders seem to be more confident in the highest end of the spectrum, superprime, than in the lowest end, deep subprime. About 18 percent of all auto loans and leases were to superprime borrowers, those with credit scores of 781 to 850, compared with 3.5 percent of loans to deep subprime customers, those with credit scores of 300 to 500, according to Experian.
“Subprime and deep-subprime loans are growing, but the entire market is growing from a volume perspective across all risk tiers,” Melinda Zabritski, senior director of automotive finance for Experian, said in a statement.
Thirty-day delinquencies rose to 2.22 percent, up slightly from 2.19 a year earlier, while 60-day delinquencies inched up to 0.62 percent, from 0.56 percent a year earlier.
The decline in subprime share and only a slight rise in delinquency rates “makes [it] clear that the sky is not falling,” Zabritski said.
Prime choose used
New-vehicle loan amounts averaged $29,880 in the second quarter, a 5 percent rise from the 2015 period, and the average loan term was 68 months, up 1 month from a year ago. The average monthly payment also increased, climbing $17 from last year to $499.
The average used-vehicle loan amount grew 2.3 percent over the year-earlier period to an all-time high of $19,101. The increase was pushed by rises in prime and superprime customers choosing used vehicles.
According to Experian, 43 percent of superprime customers financed a used vehicle in the second quarter, marking a 10 percent increase from the previous year. For prime customers, 60 percent chose a used vehicle, a 6.6 percent increase.
“One of the biggest trends we continue to see is the shift to used vehicles by customers with excellent credit,” Zabritski said. “As vehicle prices continue to rise, savvy consumers are looking for ways to control costs. That appears to be pushing more customers toward used vehicles.”
The average loan term for used vehicles was 63 months in the second quarter, compared with 62 months a year earlier. Despite the loan-term extension, the average monthly payment rose $3 to $364.
Lease penetration reached a record 31.4 percent of all new-vehicle transactions in the second quarter, up from 26.9 percent a year earlier, Experian said. The average monthly payment jumped $10 to $404.
Used-vehicle leasing, which lenders such as Ally Financial and Toyota Financial Services have offered its dealers and car buyers this year, also ticked up. It made up 3.71 percent of the lease market in the second quarter, up from 3.26 percent the year earlier.