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Subprime Auto Originations Fall to 10-Year Low

June 7, 2017

SCHAUMBURG, Ill. — First-quarter vehicle registration data reveals that auto finance sources are moving toward more creditworthy car buyers, according to Experian Automotive. The shift pushed subprime auto originations to a 10-year low.

And with the total share of subprime and deep-subprime loans to drop from 26.48% in the year-ago quarter to 24.1%, the 30-day delinquency rate fell to 1.96% from 2.1% in first quarter of 2016, according to Experian Automotive. However, the 60-day delinquency rate rose slightly from 0.61% in the year-ago quarter to 0.67%.

“The truth is, lenders are making rational decisions based on shifts in the market,” the firm noted in its report. “When delinquencies started to go up, the lending industry shifted to more creditworthy customers.”

With the shift, average credit scores for both new and used-vehicle loans rose from 712 in the year-ago period to 717 and from 645 to 652, respectively. In fact, superprime was the only risk tier to grow for new-vehicle financing from a year ago, rising from 27.4% to 29.12%.

All other risk tiers lost share in the new-vehicle market lost share, with the percentage of prime originations falling slightly from 43.36% in the year-ago quarter to 43.04%. The share of nonprime originations fell from 17.83% to 16.96%, while subprime fell from 10.64% to 10.1%.

“For used vehicle loans, there was a similar upward shift in creditworthiness,” Experian Automotive noted. “Prime and superprime risk tiers combined for 47.4% market share in Q1 2017, up from 43.99% in Q1 2016.At the low end of the credit spectrum, subprime and deep-subprime share fell from 34.31% in Q1 2016 to 31.27% in Q1 2017.”

The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late-model used vehicles. The firm also noted that leasing continues to rise and now accounts for 31.06% of all new-vehicle financing.

“Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs,” the firm noted, adding, “Another key indicator of the lease-to-CPO impact is the rise in used vehicle loan share for captives.”

In the first quarter, captives held an 8.3% share of used-vehicle financing, compared to 7.2% in the first quarter of 2016. Captives also continued to dominate the new-vehicle financing segment, increasing their share from 49.4% in the year-ago period to 53.9%.

The firm also noted that the average new-vehicle loan reached a record $30,534. The average monthly payment for a new-vehicle loan also reached a record $509.

 

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