Home Loans & Credit Auto Loans Shrink For Borrowers With The Worst Credit

Auto Loans Shrink For Borrowers With The Worst Credit

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Auto lenders have pulled back on loans to customers with the riskiest credit and as a result, the percentage of delinquent loans showed a decline in the second quarter, according to Experian Automotive.

For the market overall, affordability remains a concern. Interest rates and average monthly payments are on the rise, said Melinda Zabritski, senior director of automotive financial solutions for Experian.

The average new-vehicle monthly loan payment hit a record $525 in the second quarter, up $20 from a year ago, Experian said today in a report on auto loans and leases originated in the second quarter of 2018.

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The average used-vehicle loan amount also hit a record for the quarter at $19,708, Experian said. The average new-vehicle loan was $30,958.

Consumers are staying with a strategy of taking out long-term loans, to try and offset higher sticker prices, higher interest rates and higher loan amounts. Longer terms mean consumers pay more interest over the life of a loan. The average term in the second quarter was just under 69 months. Experian said, “72 months remains the most common loan term for both new and used loans.”

The effect is being felt at the risky end of the credit spectrum. “Compared with last year, lenders appear to be more conservative as market share for subprime and deep-subprime automotive loans continues to fall,” Experian said.

“Deep subprime hit an all- time low of 3.54%, compared with 3.98% in Q2 2017,” Experian said. The credit bureau defines deep subprime as credit scores of 500 or lower.

With auto lenders making fewer risky loans, delinquencies declined slightly in the quarter.  Experian reported 30-day delinquencies accounted for about 2.1% of outstanding balances in the second quarter, vs. 2.2% a year ago.

Market share declined in the quarter for “buy-here, pay-here” dealers and for independent finance companies, which tend to specialize in loans to customers with subprime credit.

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