Stimulus checks should help, but subprime auto loans are at record highs
The recovery in Auto sales in the United States leaves borrowers behind with subprime loans, according to the latest statistics from Experian Automotive.
But even watching used vehicle loans exclusively, the share of borrowers with subprime loans is at a record level, according to Melinda Zabritsky, Senior Director of Automotive Financial Solutions for Experian Automobile, during a telephone interview.
Experian defines subprime mortgages as credit scores below 600. This share fell to an all-time high of 24.4% of used vehicle loans in the fourth quarter of 2020, from 28.3% a year ago, a declared the credit bureau.
And for the first time on record, borrowers in the riskiest category of “deep” subprime – defined by Experian as credit scores of 500 and below – accounted for less than 2% of total loans and rentals, new vehicles and used handsets, quarter 2020.
The share of deep subprime loans was 1.9% of this total, up from 3.4% a year ago. Experian released fourth quarter statistics March 4.
In 2021, tax refunds and government stimulus checks should help. Historically, the first quarter has been generally as good as subprime auto loans, thanks to tax repayment season.
But auto lenders and analysts are starting to worry about what will happen to subprime auto loans later this year, when this temporary effect wears off.
Mahesh Aditya, CEO of Santander Consumer United States, a specialist in subprime auto loans, said at the recent vehicle finance conference of the American Financial Services Association that credit quality in 2020 was better than expected given the high unemployment rate. That is, measures such as defaults have been weaker than expected.
He said consumers in 2020 clearly place a higher priority on car payments, more than credit cards, for example.
“The other strange thing that happened during the pandemic is that we were able to improve credit quality at all levels – prime, subprime, all levels – we found credit quality that means better customers. creditworthy, higher FICOs, throughout the pandemic. He said at the conference, which was held online. FICO stands for Fair, Isaac Co., a commonly used credit score mark.
“These are trends that we will be watching very closely next year once the stimulus is exhausted,” Aditya said. “The other thing, obviously, is how much of that relates to the stimulus and how much of it isn’t. Here is the big question.