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.
Comments
The problem is “subprime” loans is a blanket term and is easy to exploit…For example, most do not realize that if you have 3 or 4 cosigners all with bad credit, often the loan will get approved…
Another huge problem is because vehicle prices are so high some Institutions are offering 84 month loans . At one time the industry norm was 48 months , then that turned into 60 etc…
This is a problem that has been brewing for a couple of years now and has finally caught up to the banks . And to a greater degree the consumer that won’t be able to get out of that loan without being upside down in what the resale is and what is still owed by customer .
It happened withe housing industry now autos , history repeating itself .
And its just going to get worse. Average truck sales price $47,000. Average large luxury SUV is $83,000. Auto prices are inflating much faster than the average workers pay.
https://pickuptrucktalk.com/2018/02/2017-pickup-truck-suv-average-purchase-price/
So much for all the hoopla about prosperity.