Latest report from Experian Automotive shows a rise in the repossession rate of subprime auto loans

Know What to Expect

Poor Credit Repossessions Increase

Consumers in the market for a new or used car that have experienced credit problems in the past should be aware of the latest report from Experian Automotive that shows a rise in problem credit auto loan repossessions during the first quarter of 2014.

Although this is only a portion of the report, here at Auto Credit Express we believe that applicants with problem credit should be aware of what's going on in auto lending. Why is that?

In many cases just before they begin the process applicants ask us, "How hard is it to get approved for a car loan?"

The answer is that although each situation is different, the chances of an approval as well as the way the loan is structured (down payment, loan term, interest rate, etc.) is also influenced by the overall lending climate – a topic that's reflected in the latest report from Experian Automotive.

Experian Automotive Delinquency Report

The May 29, 2014 report begins with the headline, "Twenty-two states show increases in 60-day automotive loan delinquencies."

But the news does get better as Experian then goes on to state that "Thirty-day auto delinquencies dropped 5 percent, going from 2.36 percent in Q1 2013 to 2.24 percent in Q1 2014. Additionally, only six states showed an increase in 30- day delinquencies."

Here is Experian's take on the results:

"Consumers overall are doing a better job of paying their auto loans on time. However, it is evident that consumers in some states still are struggling to meet their payment obligations," said Melinda Zabritski, Experian's senior director of automotive credit. "It is important for consumers to keep in mind that paying bills on time is one of the most essential factors when lenders are evaluating who gets the best rates and terms when applying for a future loan."

Bad Credit Car Loans

Ms. Zabritski also noted that "While the subprime auto loan market continued to grow in Q1 and credit-challenged consumers have been able to get financed more easily, a rise in overall delinquencies could cause lenders to tighten their credit standards, ultimately lessening access to credit in the future."

So why is she concerned about loan delinquencies? That bit of information is also in the report:

"Other findings from the report showed that repossessions were up 36.5 percent overall in Q1 2014, increasing from 0.50 percent in Q1 2013 to 0.68 percent in Q1 2014. However, the increase was driven entirely by finance companies that provide a significant majority of their loans to credit-challenged customers. In Q1 2014, finance companies' repossession rates jumped by 69.1 percent, from 1.78 percent in Q1 2013 to 3.01 percent in Q1 2014."

With the risk factor for poor and bad credit auto loans on the rise, these lenders may begin tightening their lending standards. With this in mind, there are a number of tips consumers should review before applying for a loan:

  • Know the information in your credit reports and be able to explain most of the negative information it contains.
  • Know at least one of your credit scores.
  • In considering a vehicle, choose from a range of affordable small or mid-sized cars within a payment range that's no more than 10% to 15% of your gross monthly income (the lower the better).
  • With lenders scrutinizing loans more closely with lower LTV ratios, the higher your down payment, the better the loan will score. Not including new car rebates or dealer cash, a down payment of 15% or more will increase the odds of an approval.

The Bottom Line

Although the subprime market continued to grow during the first quarter of this year, the increase in repossession rates is sure to cause these finance companies to moderate the pace of lending. If this happens, borrowers with larger down payments (with cash down or real trade equity) who are willing to consider a range of affordable vehicles will have a much better chance of receiving an auto loan approval. It also means more people will be looking for an auto loan after a repossession than before.

Another good tip: Auto Credit Express matches car buyers that have experienced credit difficulties with car dealers that can offer them their best opportunities for approved car loans.

So if you're ready to turn your car credit around, you can begin the process now by filling out our online car loan application.