Over 1/3 of Car Loans Are to Subprime Borrowers
Current application processing software is becoming more of an essential tool for financial institutions of all sizes. With numerous reports showing that the economy is improving, and borrowers are beginning to gain more control over their finances, banks are trying to find innovative ways to stay competitive.
This has caused some organizations to open up their lending to subprime borrowers. Experian released data last week that showed that U.S. banks made 36 percent of their car loans to subprime borrowers in the second quarter. That is an increase from 34 percent during the same time last year.
“Loans have become more accessible in recent years, and we’ve seen a steady growth in the percentage of consumers financing their vehicles,” Melinda Zabritski, Experian senior director of automotive credit, said in a statement to Reuters. “This is good news for the auto industry, but it’s also good for consumers.
Essentially, some banks are looking toward subprime borrowers as delinquency rates fall and as automobile manufacturers’ finance subsidiaries draw more reliable customers.
The Experian study also found that 84.5 percent of customers acquiring cars in the second quarter financed the deals with loans or leases, which is almost a 15 percent increase from 2008.
Reuters explained that the data also proves that the interest rates that banks expect to cover losses on bad loans are down. Citing the Experian study, the news source said that the average rate from all lenders on new cars was 4.46 percent in the quarter, a decrease from 4.63 percent one year prior.
For banks to maximize their profits, even as more opportunities are available for consumers, they must ensure that their credit application software is current. That way, a thorough credit history can be taken into account before a borrower is granted a loan.