Subprime borrowers drive auto loan origination growth, says N.Y. Fed

Auto loan debt grew in the first quarter, driven primarily by borrowers in the lowest credit tiers, according to the Federal Reserve Bank of New York.

Total auto loan debt in the U.S. rose 4 percent year over year to $1.28 trillion in the quarter, according to the central bank's Household Debt and Credit Report released Tuesday. Auto originations — loans and leases for new and used vehicles — grew 6.3 percent to $139 billion in the quarter.

Subprime borrowers, or those with credit scores below 620, contributed the most growth from the prior year, with originations up 13 percent to $27.9 billion, according to the New York Fed. Subprime borrowers were responsible for about 20 percent of auto loan balances in the quarter, up from 19 percent in 2018.

Consumers with credit scores between 620 and 659 were the second-largest growing category. Originations for that group increased 13 percent to $17 billion.

The percentage of seriously delinquent auto loans also rose. Overall, the 90-day delinquency rate represented 4.69 percent of the outstanding debt balance in the first quarter, up from 4.26 percent a year ago, the New York Fed said. It is at its highest level since December 2011.

The New York Fed said last quarter that the increases in subprime originations and delinquency rate were bad omens of the financial health of the auto lending sector.

Though growing at a slower clip, originations by customers with the highest credit scores still accounted for the most auto loans and leases in the quarter. Borrowers with credit scores above 760 originated $45.9 billion in auto loans in the quarter, making up 33 percent of all auto loan originations in that time frame.

Still, the median credit score for new borrowers dipped slightly from the prior quarter, moving to 708 from 710.

Auto loan balances have increased steadily in aggregate since 2013 as Americans use financing more often to buy vehicles, the Fed said in a blog post. More than one-third of Americans carry auto loans, the bank said, up from 20 percent in 1999.

Although total household debt grew by $124 billion in the first quarter, the N.Y. Fed cautioned that consumers may be losing their appetites for credit. The number of credit inquiries for all loan types in the past six months declined to around 137 million, the bank said, the lowest level recorded since the Fed began tracking the data. Similarly, account closings reached their highest level since 2010 with 229 million accounts closed within the past 12 months.