Subprime Auto Market Heats Up, Loan Standards Weaken

January 13, 2014
American Banker 
auto financing news

A new report from Moody's on the auto finance sector indicates that lenders are loosening their underwriting criteria as demand for vehicles grows. In particular, they are approving more poor-credit borrowers, with the volume of subprime auto loans climbing 9 percent at credit unions and 1 percent at banks during the third quarter.

Within the subprime niche, loan-to-value (LTV) ratios increased for the three-month period, signaling greater risk. LTV on subprime loans to new-car buyers averaged 143 percent from July through September, up from 140 percent a year earlier, and rose from 125 percent for used-car financing to 128 percent. At the same time, average credit scores for used-car buyers, who often are subprime borrowers, has stabilized; and losses on subprime auto loans have been relatively low so far.

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