Auto sales are up. Interest rates are down. Good news, right? Hmmmm... not so fast. Experian Automotive announced that along with increased sales, we're seeing an increase in subprime loans for new and used vehicles. In fact, according to their research, new vehicle loans to the "credit-challenged" are higher now than they were in 2007 and 2008! That means more loans with more risk. Maybe not so good.
Experian's study, State of the Automotive Finance Market, revealed that because auto lending has eased up, more loans are being made to a wider range of customers including many that would have had a tough time getting a loan a few years ago due to not so great credit scores. These credit scores put them in the nonprime or subprime categories and are considered higher risk by the lender.
Over a quarter of new vehicle loans last quarter were to customers in the nonprime, subprime and deep subprime categories, 14 percent more than the same time last year. Wow! The report also showed that credit scores are dropping as much as nine points for both new and used vehicle loans. As average credit scores go down, the amount financed has gone up.
The findings included:
• The average amount financed for a new vehicle increased $475 from the second quarter of 2011 to the second quarter of 2012.
• The average amount financed for a used vehicle increased $370 for the same period.
As a check processing provider to the auto industry, we keep an eye on payment risk and sales trends. With more subprime customers shopping, there's a greater need for check guarantee for down payment checks. A check guarantee service can give a dealership piece of mind and protect them against bad checks. Check services also give your customers some payment options. Now that's good news all around.
Our check guarantee services are well suited to the auto industry and provide tools and payment options such as Multiple Check for customers. We also know how the recession critically impacted our clients and their customers. This news brings back memories of risky home mortgages just a few years back. To others in the auto industry, I'd like to hear what you think. Good news or bad news?, let me know your comments below!