The auto industry has seen years of record sales following the late 2000 and early 2010 economic crisis, but the sales figures have come at a price. Subprime auto loans have reached their highest point since 1996.
Bloomberg reported last Monday that the delinquency rate of subprime auto loans rose to 5.8 percent this past March. The report noted that even during the global recession, delinquency rates barely jumped over 5 percent.
Many lenders began approving subprime buyers (categorized with FICO credit scores under 550) to move metal, which led to the record auto industry sale figures in the U.S. Now, the loans are coming back to haunt many buyers.
Last year, according to the report and data, one-third of all auto loans were subprime.
Lenders were told to take a more cautious approach and bigger banks have heeded the advice. Between January 2017 and January 2018, new auto loans fell 10 percent to reflect a lower amount of subprime buyers entering the marketplace. However, big banks haven’t been the sole source of delinquency. Instead, small dealership institutions with their own finance department and independent financial institutions have moved on “deep subprime” lending.
History does, as they say, repeat itself.