Subprime borrowers are receiving as large a portion of new car loans as they did immediately before the start of the financial crisis in 2007, according to a study by Experian Plc's auto finance research unit.
Outstanding auto loans rose to $682 billion at the end of the second quarter, still less the $701 billion in 2007, despite standards being eased. The balance, however, was up an estimated 5% from a year earlier.
Subprime borrowers received 25.4% of all loans on new vehicles in the three months ending June 30, up from 22.3% in the same period a year ago and more than the nearly 25% at the start of the economic downturn, according to the report released Tuesday. The report also found U.S. lenders more aggressively making loans to subprime borrowers of used cars. Subprime borrowers received 56.5% of loans on used cars in the quarter, up from 52.7% a year earlier.
Banks and other lenders are under pressure to make up for profits lost to shrunken loan portfolios and low interest rates that persist five years after the financial crisis began.
But lenders are showing caution on another key front: how much they lend against the value of new vehicles, according to Melinda Zabritski, director of automotive credit for Experian. The average loan-to-value on new cars was 109.6%, down 0.61 percentage points from a year earlier.
"Despite the rise in subprime loans overall, there is still a strong sense of managing risk," Zabritski said in a statement. "Because the overall lending environment has improved, lenders are making loans available to a wider range of customers."
The average amount financed for a new car rose $474 to $25,714. For a used car, the average amount financed rose $370 to $17,433. The average time to repay new and used car loans increased by one month, to 64 months for new cars and to 60 months for used cars.
Lenders have been encouraged by the fact more borrowers are making payments on time. The percentage of loans delinquent 30 days fell in the quarter to 2.52% from 2.59%. Experian uses a proprietary scale to score the credit history of borrowers and determine which are prime and which are subprime.