Garnet Capital Advisors Blog

Archived news

July 19, 2018

Subprime Auto Loan Delinquencies Drop


With a lower percentage of borrowers defaulting on subprime auto loans, it has become an excellent time for lenders to re-examine loan portfolios with a loan sale advisor for additional gains. 


Few people are surprised when a subprime borrower defaults on their loan, but it sure is good for business when these delinquency rates are on the lower end of the spectrum. On a year over year basis, recent reports show that subprime delinquencies are falling. 

There have also been some credit tightening of this market in the past year. These figures indicate that now is an excellent time to act for lenders who want to maximize their portfolios. 

Recent reports reveal that delinquency rates are down on subprime auto loans.

Subprime Auto Loan Delinquencies are Down

Fitch Ratings releases monthly reports on subprime auto loan delinquencies. Currently, the rates related to securitized pools of subprime auto loans are down. For the month ending June 15, losses on an annualized basis are down 5 basis points to 6.76 percent. These are the best results for this market since June 2016, when the annualized delinquency rate was 6.32 percent. 

Subprime auto loan delinquencies are slightly up month to month in 2018. These rates have been falling since February but went up 33 basis points to 4.41 percent in June. However, rates remain below what we saw in the last half of 2017 and the first quarter of this year. 

The Tightening of the Auto Subprime Market

The Federal Reserve Bank of New York reports that total auto loan debt has increased in Q1 2018 to $1.23 trillion compared to $1.17 trillion a year earlier. This accounts for 9.3 percent of the nation's $13.21 trillion in household debt and a higher level than even credit card debt. 

Of the new loan originations, however, subprime loans are dropping. In Q1 2018, there were $130.9 billion in new auto loan originations. Prime auto originations are up, but subprime originations have dropped 30.4 percent, which is the lowest rate since 2010. 

Some lenders are backing off from the auto subprime market while others are simply going out of business. In 2017, Spring Tree Lending and Summit Financial Group both shut their doors amid allegations of misreported losses and other fraud. 

According to recent figures from Equifax's U.S. Consumer Credit Trends Report, subprime originations are down 8.5 percent year over year. This not only reflects a tightening in the subprime market but is also reflective of the decline in auto sales that analysts predicted at the beginning of 2018. 

Fortunately, the subprime loans that are already issued seem to be of higher quality. Unemployment is at an 18-year low, and consumer confidence is up. Provided positive economic trends continue, we should expect to see a continuing drop in these numbers heading into the second half of the year.

Banks who partner with a loan sale advisor can maximize their loan portfolio returns. 

Optimize Bank Portfolios Through a Whole Loan Broker

Considering the positive state of the subprime auto loan market, lenders may wish to re-examine loan portfolios to assess risk and reward. A loan sale advisor can help banks secure some of these portfolios of recent vintage for purchase, which can boost bank profits at lower risk than in the past. 

Sign up for our newsletter to learn more about the benefits of partnering with loan sale advisory service such as Garnet Capital.