Subprime Loans are Alive and Well

A recent article in Ward’s Auto explains that subprime automobile loans are still going strong despite the opinion of some industry experts who might believe otherwise. While subprime loans are surely a risky proposition and some borrowers end up struggling to make their payments, statistics show there is no slowdown.

 

The article cites Equifax’s chief economist Amy Crews-Cutts, who said the following: “The fact is loan performance is good relative to historic levels.” Really, it’s just simple math. A record number of car sales last year means more loans … which ultimately results in more subprime loans, too.

 

Some of the experts’ trepidation about subprime loans comes from a small uptick in delinquency rates. In 2010 they were at 0.79 percent; in 2016, that number rose to 0.85%. According to Equifax, just over 13 percent of bank and credit union loans were of the subprime variety; meanwhile, for other lenders willing to take on a greater risk, the number sits at 34.8 percent. But these numbers are not deterring these loans.

 

The article offers an interesting reason as to why these subprime loans continue to be issued. They theorize that the mindsets of quite a few financially-troubled Americans have changed over time – and today, many of them make sure to continue paying off their cars even if it means waiting on their mortgages. In other words, the car payment often comes first in the order of which debts are addressed.

 

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