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Equifax: Finance Sources Pull Back From Subprime, Leasing

May 07, 2018

ATLANTA — The auto finance industry registered a significant drop in lease originations from December 2017 to January 2018, as finance sources placed a greater emphasis on auto loan incentives. Finance sources also worked to reduce their exposure to subprime accounts, which fell 9.5% in January from a year ago to their lowest share of the market since 2006, according to Equifax.

Coming off the third highest origination count in 2017 — 2016 being the record holder — the industry originated 2.01 million auto loans in January, or $44.1 billion. That’s a 4.1% decrease in accounts and a 2% decline in balances from the year-ago period, the firm reported.

“It is evident that banks, captives, and lenders are focused on reducing their exposure to subprime accounts in automotive, but with the economy at healthy levels, there is also a smaller pool of subprime candidates shopping for vehicles compared with several years ago,” said Gunnar Blix, deputy chief economist at Equifax. “There seemed to be more of a focus on pursuing subprime volume in 2017, and today, lenders are looking to pull back a little and find more balance in their portfolios.”

Looking at credit quality, there were 386,500 loans and leases issued in January to consumers with a VantageScore 3.0 credit score below 620, a 9.5% decrease from January 2017. These newly-issued loans have a corresponding total balance of $6.9 billion. And through January, subprime held a share of 19.2%, the lowest share in 12 years.

The average origination balance for all auto loans and leases in January 2018 was $22,205, a 3.5% increase over January 2017. The average subprime loan amount was $18,128, a 1.4% increase from a year ago.

As for leasing, the industry originated 256,510 leases in January for a grand total of $4.2 billion — a 17.1% decrease in accounts and a 17.4% drop in balances from the prior-year period. Leases accounted for 12.7% of all auto accounts opened in January, and 9.5% of balances.

Of the total leases originated in January, 24,920 of them were extended to consumers with a credit score below 620. This was a 13.5% decrease from the year-ago period. Those subprime leases also had a corresponding total balance of $429 million, a 13.2% decrease on a year-over-year basis.

The average origination balance for all leases issued in January 2018 was $16,527, a 0.65% edge over January 2017. The average subprime lease amount was $17,199 — a 0.2% increase from a year ago.

 

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