Q2 Subprime Originations Exceed Pre-Recession Levels, Experian Reports

SCHAUMBURG, Ill. — Auto loans made to credit-challenged customers in the second quarter accounted for more than one in four new-vehicle loans originated, Experian Automotive reported. But finance sources did show that they aren’t necessarily throwing caution to the wind.  

Experian Automotive noted that loans made to customers with nonprime, subprime and deep subprime credit accounted for 25.41 percent of all new-vehicle loans originated during the quarter, a 14 percent increase from a year ago. New-vehicle loans made to credit-challenged customers also were higher than they were during the second quarter of 2007 (24.96 percent) and Q2 2008 (24.49 percent).

However, the Q2 analysis also showed that lenders are still taking a cautious approach, keeping loan-to-value (LTV) ratios lower than they were a year ago. For new vehicles, the average LTV ratio was 109.55 percent vs. 115.65 percent in the second quarter of 2011.

“Despite the rise in subprime loans overall, there is still a strong sense of managing risk,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “Because the overall lending environment has improved, lenders are making loans available to a wider range of customers. This is good for manufacturers and dealers, as it allows them to sell more vehicles. However, the lower loan-to-value ratios show that lenders are not willing to throw caution to the wind.”

Additionally, the Q2 report showed that the average customer credit score for new-vehicle loans dropped nine points, from 762 in the second quarter 2011 to 753. For used-vehicle loans, the average customer credit score also dropped nine points from 671 in the second quarter 2011 to 662.

The following are other data points from the second quarter:

• The average amount financed for a new vehicle increased $474, from $25,240 in Q2 2011 to $25,714 in Q2 2012.

• The average amount financed for a used vehicle jumped $370 from $17,063 in Q2 2011 to $17,433 in Q2 2012.

• The average monthly payment for both new and used vehicles was relatively flat, with new vehicles rising by $2, from $450 in Q2 2011 to $452 in Q2 2012. For used vehicles, monthly payments jumped $4, from $347 in Q2 2011 to $351 in Q2 2012.