We've written many times in the past few months about the auto and auto lending industry. Many lenders have been increasing the numbers of auto loans as a way to improve their balance sheets. This is mainly because the number of auto delinquencies were found to be much lower than other forms of loans. But now, the industry is not looking as appealing as before. New data from Experian Automotive shows that auto delinquencies and repossessions have been increasing compared to a year ago.
Auto loan delinquencies rose by more than 12 percent in the first quarter of this year compared to the first quarter of 2012, and repossessions by nearly 17 percent during the same time period, according to the Experian data.
"Automakers and banks eased their credit terms in the past year, lending more to people with lower credit ratings," an article in the Los Angeles Times said. But, at the same time, compared to the wake of the recession, the number of delinquencies is relatively low. "Despite the surging delinquencies and repossessions, both remained well below record levels."
Still, for auto and other lenders that are easing lending standards as the economy recovers, there is still reason to be aware of borrowers' qualifications and their ability to repay their loans, as shown by this example. When increasing the number of loans, financial institutions can invest in risk assessment tools. By having the most information about borrowers and their credit history, lenders can make better decisions about who to lend to, and, consequently, improve profits and stay solvent in the uncertain economy.
