NEW YORK New analysis released by the Federal Reserve Bank of New York suggests that a revival of subprime auto lending, which has spurred concern in some quarters about excessive risk, should not be a concern.
The bank’s researchers found that automobile buyers in the lowest band of credit scores are borrowing about $20 billion per quarter, which is roughly in line with pre-recession trends.
“While individuals with lower credit scores are able to originate auto loans,” New York Fed officials said, “the origination amounts are still below, but approaching, the levels seen in the early- and mid-2000s. When we break out originations by borrowers’ Equifax credit scores at the time of origination, we do not see evidence supporting a disproportionate or unusual volume of new loans being issued to riskier borrowers.”
Loans to borrowers with the worst credit scores amounted to approximately 24% of total auto loan originations in the second quarter of this year, according to the report. That is a high mark for the last five years, but it is well below the 30%-plus levels reached in both 2001 and 2006.
“It appears that eighteen- to twenty-nine-year-olds are simply borrowing less frequently,” the New York Fed researchers wrote. “The especially slow recovery in auto borrowing among the young is consistent with recent analysis suggesting a long-term decline in the demand for autos among younger Americans.”
