Lenders Cutting Back On Subprime Loans

Financial lenders are no longer relying on subprime offerings, which could affect the current vehicle sales boom. 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, according to Experian Automotive. Subprime buyers have credit scores ranging from 619 down to 550 while deep subprime is anyone below 550.

The numbers are still higher than the low of 10.2 percent during the depths of the recession in 2009. Still, the current figures are swell below the pre-recession level highs of 16.6 percent in Q2 2008 and 19.9 percent in Q2 2007, the company reported.

"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, in a statement.

The average monthly payment for new and used vehicles hit new highs during the second quarter. The average monthly payment for a new vehicle jumped $10 to $467 while the used car payment rose $4 to $355.

"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."

A few other trends about buyers, include:

Of all new vehicles sold in Q2 2014, leases accounted for a record high 25.6 percent, up from 23.4 percent the previous year
The interest rate for a new vehicle was up from 4.46 percent in Q2 2013 to 4.59 percent in Q2 2014
Used vehicle interest rates were up from 8.56 percent in Q2 2013 to 8.82 percent in Q2 2014
The average credit score for a new vehicle loan in Q2 2014 was 711, up from 699 a year earlier
The average credit score for a new vehicle lease rose to 717 in Q2 2014 from 706 in Q2 2013

Not only are lenders providing less often to subprime and deep subprime buyers, they’re giving them less money as well. For new cars, the drop is smaller for subprime borrowers than deep subprime: .8 percent compared with 2.6 percent.

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