Latest report from Experian Automotive showing that the percentage of loans to subprime buyers is moderating could prove to be a wakeup call to many credit-challenged consumers

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Subprime Auto Loans Leveling Off

Here at Auto Credit Express we feel that consumers with bad credit should be aware of a number of factors before applying for a car loan. In part this is because applicants frequently ask us, "How hard is it to get approved for a car loan?"

So while each individual's situation is different, the chances of obtaining an approval, at least in part, can depend upon the general lending climate – a topic that's examined in the latest report from Experian Automotive.

Experian Automotive Report

The September 3rd, 2014 report begins with the headline, "financing to subprime borrowers begins to throttle back."

The report went on to state that "the percentage of new vehicle loans to subprime and deep subprime borrowers began to level off in Q2 2014." Additionally," the percentage of new vehicle loans going to consumers in the subprime and deep subprime segments was at 15.1 percent in Q2 2014, down from 22.1 percent in Q2 2013."

It also went on to address some of the recent warnings the lending industry has received regarding high-risk automotive lending:

While up from the 10.2 percent low at the peak of the recession in 2009, the current figures are still well below the prerecession level highs of 16.6 percent in Q2 2008 and 19.9 percent in Q2 2007.

Similarly, the percentage of used vehicle loans extended to the subprime and deep subprime segments in the quarter was 40.2 percent, down from 50.6 percent in Q2 2013. Again, the figures are up slightly from the 39 percent seen in Q2 2009, but still below the prerecession levels in 2008 and 2007 of 43.4 percent and 46.6 percent, respectively.

Here is Experian's take on these findings:

"Although we've seen relative stability in the automotive industry the past several years, lenders are still showing cautionary signs when lending to the subprime market and keeping their risk at manageable levels," said Melinda Zabritski, senior director of automotive finance for Experian. "As for consumers, as long as those in these higher risk segments continue to pay their bills on time, keep delinquent balances in check and select a vehicle that fits within their budget, they should still be able to obtain the necessary financing to purchase a vehicle that meets their needs."

Additional findings

The report also found that:

  • The average loan amounts extended to subprime and deep subprime consumers also fell in Q2 2014.
  • The average new vehicle loan amount to a subprime borrower dropped to $27,347 in Q2 2014 from $27,563 in Q2 2013, and new loans to deep subprime borrowers fell to $24,836 in Q2 2014 from $25,486 in Q2 2013.
  • For used vehicles, the average subprime borrower loan fell to $16,546 in Q2 2014 from $17,020 in Q2 2013.
  • Used deep subprime loans fell to $14,358 Q2 2014 from $15,113 in Q2 2013.

"Used vehicle financing has experienced consistent growth over the last several years," continued Zabritski. "As we continue to see the price of vehicles reach new heights, more and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car."

The Bottom Line

The moderation in non-prime auto loans means that either the number of borrowers has declined (not something we've observed) or, more likely, that subprime lenders are looking at applicants more closely. It also could signal that, in some cases, consumers with less than perfect credit probably should be more open to financing a more affordable used car.

Another observation: Auto Credit Express matches borrowers with credit issues to those new car dealerships that can offer them their best opportunities for car loan approvals.

So if you're ready to begin the process of establishing your car credit, you can start it now by filling out our online auto loan application.