The subprime lure.
Experian Automotive recently said 21.87% of all new vehicle loans went to customers in the nonprime, subprime and deep subprime categories, according to its most recent quarterly data.
The largest percentage increases were in the two highest risk Segments-deep subprime, which jumped 17.3%, and subprime, which jumped 17.8%. Nonprime loan shares also increased by 12.5%.
"With more loans being booked outside of prime, lenders are showing they are willing to be more flexible in their lending strategies," said Scott Waldron, president of Experian Automotive. "However, consumers may still have the impression that lending is extremely tight, so it is important for lenders and retailers to educate car shoppers that there are financing options available to a wider group of consumers."
Experian's analysis also showed that the average consumer credit score for both new and used vehicle loans dropped in the third quarter of 2011. For new vehicle loans, the average credit score fell from 769 in third-quarter 2010 to 763 in third-quarter 2011. For used vehicle loans, the average fell from 683 in third-quarter 2010 to 676 in third-quarter 2011.
Despite the drop in credit scores and more courting of subprime borrowers, the automotive finance industry is continuing a steady climb to good solid footing, said Melinda Zabritski, director of automotive credit for Experian Automotive.
"Consumers continue to do a better job of repaying loans, while at the same time, many of the most risky loans from 2007 and 2008 are now off the books," Zabritski said. "These factors combine to lower the total volume of dollars at risk and give lenders more confidence in loosening their overall lending standards. "
During the third quarter, 30-day delinquencies fell 7.05% while 60-day delinquencies fell 7.4%, according to Experian. Repossession rates dropped by 6.4%, from 0.67% in third-quarter 2010 to 0.62% in third-quarter 2011.
The average loan amount for new vehicles was up $600, going from $25,273 in third-quarter 2010 to $25,873 in third-quarter 2011.The average loan amount for used vehicles jumped $653, from $16,706 in third-quarter 2010 to $17,359 in third-quarter 2011.
For most of 2011, credit unions were the go-to lenders with some of the country's lowest auto loan rates, industry data showed. However, auto finance companies topped the list when it came to lending to subprime borrowers. According to Equifax, 38.5% of all auto loan originations from subprime borrowers came from auto finance companies as of the third quarter. The figure was 17.6% for credit unions and banks.
Credit unions and banks originated 820,200 loans in July 2011 compared to 832,000 for July 2009, which was a 2% increase. Auto finance companies originated 854,800 loans in July 2011 compared to 581,300 in July 2009.
Michael Koukounas, senior vice president of special client services at Equifax, said unemployment rates had led auto lenders to become proactive in adopting comprehensive data and verification tools for greater loan transparency. This has resulted in evaluating a larger group of car-buying public which has aided the auto lending industry recovery, he added.