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CRL Identifies Risks Lurking in the Subprime Auto Market

February 4, 2015
Christopher Kukla
Auto Loans

Media outlets continue to report on the potential dangers of the rise in subprime auto lending. Auto lenders, particularly in the subprime auto lending market, are increasingly using risky practices to fuel lending growth. The New York TimesFortuneNPR and other news outlets reported on recent news in the subprime auto loan market, providing opportunities to explain both the changes in the market, what risky practices are on the rise, and the potential damage those practice can cause. The overall size of the auto lending market is almost $1 trillion of outstanding loans—if this growth continues without regulators paying attention to riskier behavior, we could see significant consumer losses.

A CRL brief about the recent growth in the subprime auto loan market and the increase in risk found:

  • The subprime market has mushroomed, with the dollar value of loan originations to people with subprime credit doubling since 2009. Subprime loans account for $336 billion in car loans—38.7% of all loans.
  • If car repossessions took as long as foreclosures, the equivalent auto repossession rate would be 7.41%. The current home foreclosure rate is 2.65%.
  • Car repossession rates have climbed significantly in the last four quarters. The 2Q 2014 repossession rate was 70% higher than the 2Q 2013 rate.
  • Lenders are loosening underwriting standards and extending loan terms (to as long as 96 months) while increasing auto loan amounts. This layering of risk increases the risk of defaults, particularly for subprime auto loans.
    • While the monthly payment for the average subprime loan is only 8.7% higher than for a super prime loan, the interest paid by the average borrower is over 400% more.
  • Dealer interest rate markups and selling and financing add-on products exacerbate the risk of default and increase risk disproportionately for borrowers of color.

Cars are often the largest purchase – aside from homes – that most American families make. Often, owning and driving a vehicle is not a luxury – but necessary to find a job and raise a family. More information about auto lending and auto lending abuses can be found on the CRL website. To schedule an interview with a CRL expert on auto lending abuses contact Andrew High at or 919-313-8533.