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Auto Loan Delinquencies Drop; Nonprime and Subprime Loans Rise

August 31, 2010

SCHAUMBURG, Ill. — Automotive loan delinquencies dropped during the second quarter this year, marking the second consecutive quarter with a year-over-year decrease in quarterly delinquencies, according to Experian Automotive.

Lenders also made a higher percentage of loans to nonprime and subprime customers, a sign that they are beginning to loosen credit.

The 30-day delinquency rate fell 5.88 percent, from 3.07 percent in the second quarter 2009 to 2.89 percent in second quarter 2010. The 60-day delinquency rate fell 11.85 percent, from 0.8 percent in second quarter 2009 to 0.71 percent in second quarter 2010.

The findings are part of Experian Automotive’s report, “State of the Automotive Finance Market, First Half of 2010,” which features an analysis of trends impacting the auto industry.

"Seeing a drop in delinquencies year-over-year is a positive sign for both the lending and automotive industries," said Scott Waldron, president of Experian Automotive. "The fact that we've seen a drop for the second consecutive quarter is an indication that there could be a light at the end of the tunnel for the economy."

Lending institutions appeared to loosen credit, providing a higher percentage of loans to customers in the nonprime and subprime risk tiers. The percentage of nonprime and subprime loans for new vehicles grew a combined 4.5 percent, from 16 percent in the second quarter 2009 to 16.73 percent in second quarter 2010. However, lenders were still cautious about new-vehicle loans to the lowest risk tier, deep subprime, as the percentage of those loans dropped from 1.56 percent in second quarter 2009 to 1.48 percent in second quarter 2010.

"It appears as though lenders are testing the waters with customers who have less than stellar credit," said Melinda Zabritski, director of automotive credit for Experian Automotive. "While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle risk tiers. This could be a very positive sign for the auto industry, as it could open loans to a wider group of potential customers."

Other findings include the following:

  • The average credit score for purchasers of a new vehicle fell two points, from 774 in second quarter 2009 to 772 in second quarter 2010. The average credit score for purchasers of a used vehicle rose two points, from 677 in second quarter 2009 to 679 in second quarter 2010.
  • The average amount financed for a new vehicle jumped by $883 to $25,222. The average amount financed for a used vehicle jumped by $1,027 to $16,581.
  • The states with the highest average credit scores for consumers applying for new vehicle loans were Minnesota (803), Wisconsin (796), Iowa (795), Nebraska (791) and Montana (789).
  • The states with the lowest average credit scores for consumers applying for new vehicle loans were Mississippi (749), Nevada (750), Louisiana (751), Texas (752) and North Carolina (759).

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