Experian: Deeper Push into Subprime Boosts Auto Lending

NEW YORK — Auto lending continued to expand in the fourth quarter as more loans were made to borrowers with shaky credit and payment rates improved, credit bureau Experian said Thursday.

The amount of outstanding auto loans rose 3.8%, or $23.9 billion, from year earlier levels to $658 billion, Experian said. Part of the expansion was driven by a deeper push into subprime loans, with new-vehicle loans to consumers with less-than-stellar credit increasing by 13.8% in the quarter.

"The confluence of low interest rates, longer loan terms and an increase in loans" to non-prime borrowers "provide a great opportunity for more people to find a vehicle that suits their needs," Melinda Zabritski, director of automotive lending at Experian Automotive, said in a statement.

Many lenders have beefed up their presence in the auto business as demand for financing increases and competition in other loan categories makes it difficult to gain share. Some are also growing loans for used vehicles, which tend to go to borrowers with lower credit.

Ally Financial Inc., which provides financing to General Motors Co. and Chrysler Group LLC dealers and customers, has seen "crazy, irrational competition" in the "super prime end of the marketplace," which is one reason why more banks are targeting the lower end of the market, said Michael Carpenter, chief executive of the Detroit-based lender, during an earnings conference call this month.

While the average credit score for borrowers receiving new and used loans fell six points and nine points, respectively, payment performance improved during the quarter, Experian said.

The rate of loans 30 days or more past due fell to 2.79% from 2.98% a year ago.

Delinquencies on other types of loans, including credit cards and personal loans, have also improved since the recession as borrowers have buckled down to pay off debt and cautiously taken on new debt.

For reprint and licensing requests for this article, click here.
Consumer banking
MORE FROM AMERICAN BANKER