The percentage of auto loans to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market, according to an analysis from Experian Automotive.
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"The numbers are obviously worth keeping an eye on, but lenders are managing the risk," said Melinda Zabritski, Experian's senior director of automotive finance. But she’s not yet worried about the rise in delinquencies or loans to those with lower credit scores, saying Experian hasn’t seen any obvious red flags. "Subprime has always been a part of the auto finance market and that's not going to change," she said. "We still have a lower percentage of subprime loans than we had before the recession."
Experian stated that 20.8% of open auto loans are held by those with subprime and deep subprime credit ratings, a slight increase from the fourth quarter of 2014.
As auto sales climbed to a record high last year, banks, credit unions and the finance divisions of automakers wrote so many loans that the total amount borrowed for new cars and trucks hit almost $1 trillion in the fourth quarter.Auto delinquencies and repossessions historically climb when unemployment rises and the economy slows. The latest economic data may show the economy slowing, but the unemployment rate dropped below 5% in January, the lowest level in years.