As an improving economy boosts borrowers' personal finances, the rates of auto loan delinquencies for 30 and 60 days have fallen since last year. At the same time, more loans are being made to subprime borrowers and the average credit score among auto loan borrowers has fallen.
A new report found that a major trend in auto loans since last year is the prevalence of bigger loans, but with smaller monthly payments. By spreading out the length of their loan, many borrowers had the ability to pay back their loans with more ease and bring down delinquencies. This was the case for owners of both new and used cars in the third quarter this year.
There is always the possibility that delinquencies will increase later – if the increased number of subprime borrowers are unable to pay back their loans – but many lenders remain confident the improving economy will allow borrowers to remain afloat.
The Experian Automotive report also found that auto repossessions fell dramatically since last year, by over 35 percent, and only 0.4 percent of cars were repossessed this quarter.
While the number of loans continues to remain minimal, likely due to "disciplined borrowers," the rise in loans to subprime borrowers shows shows a rising confidence not only in the borrowers, but also the lenders, as many still remain hesitant since the 2008 financial crisis.
Application processing software can give loan originators the tools needed to lend to qualified borrowers, especially as the average auto loans increases in size. Even as confidence in personal finance grows, financial institutions may find risk management software to be a viable tool when lending to subprime borrowers.