Subprime auto loan volume and market share declined this year through June, showing that auto lenders may be tightening lending standards. As lenders consider which loans to approve, they should use analytic tools that widen their scopes, Equifax says.
The credit bureau defines subprime borrowers as those having an Equifax Risk Score below 620. By volume, subprime auto loan originations declined 0.6 percent to 3.13 million loans in the first six months of this year vs. the 2015 period. Subprime share fell to 21.5 percent of all auto loan originations through June, compared with 22.4 percent a year earlier, according to Equifax’s National Consumer Credit Trends Report released last week.
Amy Crews Cutts, chief economist at Equifax, said that lenders have been risk-averse since the Great Recession. In recent months, especially, “there has been a shift in the share of new loans going to higher-credit-quality borrowers, possibly indicating tightening of lending standards,” she said in a statement released alongside the trends report.
Still, she said, “lending in the subprime segment can be done well and to the mutual benefit of consumers and lenders, provided the whole credit-collateral-capacity picture of the loan is healthy.”
Highest since 2005
For all credit tiers, the average loan origination amount was $21,392 in the month of June, up 3.5 percent from the year-earlier month. The average subprime loan amount was $18,488, up 1.7 percent.
Through June, 14.55 million auto loans were originated, up 3.5 percent from the year-earlier period. Those loans totaled to $303.9 billion, a 5.5 percent increase year over year. Both loan originations and balance were the highest recorded since Equifax began tracking the data in 2005.
In August, the 60-day delinquency rate for all loan types increased slightly to 1.05 percent, from 0.98 a year earlier. Delinquencies have been between 0.8 and 1.25 percent since March of 2013, Equifax said.
Lou Loquasto, vice president at Equifax, said in the statement that as vehicle demand begins to slow, lenders should use tools to accurately analyze risk and decide which loans to take on.
Consumer credit data is the most reliable way to understand consumers’ financial standing, Equifax says. The company has launched an auto loan market intelligence product called TradeSight, which shows competitive market share, gives performance benchmarking and helps lenders to understand dealer relationships.
The data can be filtered in a variety of ways -- by credit tier, location, lender, dealership, brand, finance vs. lease, or a specific time frame, for example. The data powering the product is drawn from IHS, Black Book and Equifax’s national credit database, Loquasto and Craig Sims, vice president and auto lending sales leader at Equifax, said during a call with reporters to announce the tool last week.
The product also provides deal structure information, Sims said. Lenders can see how they compete against their peers, dealership by dealership. They can tell whether they are the first- or last-choice lenders and whether they are getting the worst or best deals at a dealership, Sims said.
Lenders also see a summary of the dealership, which enables better discussions with retailers, Sims said. “Different dealers should be treated differently by lenders,” he said. “Dealers want to have smart conversations with lenders. TradeSight will improve the conversation, he said.
Dealerships can also benefit from TradeSight, Sims said. They can use the product to examine which lenders are offering the most attractive programs or the lowest rates. Dealership groups can analyze each dealership in the group to look at business from a national perspective, he said. They can pull credit-score distribution, volume over time and APR over time, for example.
Dealerships will be able to purchase TradeSight later this year.