Subprime and deep subprime auto loans in the first quarter dropped to their lowest share of the market since 2012, Experian Automotive said this week.
Together, subprime and deep subprime loans made up 19.7 percent of the market, compared with their 19.6 percent slice three years earlier, according to Experian’s first-quarter State of the Automotive Finance Market report.
Experian defines the subprime risk category as credit scores of 501 through 600 and the deep subprime category as scores of 300 through 500.
“Over the last year, there has been a tremendous amount of conversation around the growth in subprime loans, and the concern over the automotive finance industry approaching a potential ‘bubble,’” Melinda Zabritski, senior director of automotive finance for Experian, said in a statement on Monday.
Outstanding auto loan balances reached a record $905 billion during the quarter, an 11 percent gain from a year earlier, Experian said. (Last week, the Federal Reserve Bank of New York put first-quarter auto loan debt balances even higher at $968 billion, up 1.4 percent from the previous quarter.)
Despite the increase in outstanding loans, 30- and 60-day delinquencies fell, Experian said. Thirty-day delinquencies decreased to 2.1 percent, a 4.1 percent dip from a year earlier. Sixty-day delinquencies fell to 0.6 percent, a 3.2 percent decline from the year earlier. The lowest delinquencies were in the Midwest and Northwest, while the highest rates were in the South and Washington D.C.
Consumers’ timely loan payments have stabilized the market and brought down delinquency rates, Zabritski said. But dealers and lenders should continue to monitor market trends.
“While the market is in a positive position right now, dealers and lenders will want to want to keep an eye on these data sets and use them for the good of their business, as the insights enable them to make better decisions in terms of loan terms and interest rates,” she said.
Delinquency rates may increase, but not substantially, as loan balances grow, Zabritski said in an interview.
She expects a similar growth pattern over the next 18 months.