Subprime auto lending hits 11-year low

Despite an increase in subprime loan volume in the third quarter, auto loans to consumers with the riskiest credit histories hit their lowest overall share of the market in 11 years, according to Experian.

Subprime and deep subprime originations accounted for 21.19 percent of the total auto loan origination market, down 1.5 percent from the year earlier, Experian said in its latest "State of the Automotive Finance Market" report, released Thursday. Experian defines subprime borrowers as those with credit scores between 501 and 600. Deep subprime borrowers have scores between 300 and 500.

While subprime share shrunk, the Federal Reserve Bank of New York and TransUnion said in separate reports this month that subprime origination volume increased about 10 percent in the quarter.

But volume has grown across all credit tiers, Melinda Zabritski, Experian's senior director of automotive financial solutions, told Automotive News.

"When you look at the entire population, it paints a little bit of a different picture in saying there's some growth, but there's greater growth elsewhere," Zabritski said. "We've got a really good balance of across the risk tiers."

Prime uptick

An uptick in prime lending helped drive subprime share down, especially in the used-vehicle market. Subprime originations made up 22.86 percent of the used-vehicle market, the lowest level on record, according to Experian.

And more than half of used-vehicle loans went to prime and superprime borrowers for the first time since the third quarter of 2010, Experian said.

"We saw the peak of the recession where the market really pulled back, and prime was really at those all-time highs," Zabritski said. Back then, "It was a market pullback from necessity. Now, it's speaking to consumer choice, stronger consumer credit and a greater shift overall into prime."

More prime consumers are buying used vehicles as interest rates and vehicle prices rise and as the payment gap between new and used vehicles continues to widen, she said. The average monthly payment for new and used vehicles both reached record highs — $530 and $381.

The gap between those payments, $149, was a $13 increase from a year earlier.

"Many car shoppers base their decision on monthly payment. And with such a sizeable difference between new and used monthly payments, some consumers may opt for the less expensive vehicle," Zabritski said in a statement. "We believe every consumer deserves access to an affordable vehicle. Lenders need to analyze the data and trends so they can offer appropriate financing options."