The latest data from Equifax shows that lenders are continuing to tighten up and pull back from subprime auto lending. At the same time, delinquency rates are rising, so the subprime slowdown is likely to continue. Car dealerships need to be aware of what's happening and make sure they’re extra careful with their subprime deals to keep moving forward.
Equifax Data and the Subprime Pullback
According to data Equifax shared with SubPrime Auto Finance News earlier this month, lenders are continuing to pull back in the subprime space. Through April of 2018, subprime loan originations are down 4.5 percent and subprime auto loan balances fell 3.5 percent year-over-year.
Furthermore, Equifax data shows that 23.1 percent of all car loan contracts were issued to subprime customers through April, which is down from 24.3 percent from that time in 2017. Subprime loan origination balances also fell from 19.5 percent in April 2017 to 18.3 percent through April 2018.
Equifax considers a subprime auto loan as one to a consumer with a VantageScore 3.0 credit score of 620 and lower.
While the subprime space is tightening up, the overall auto lending market is still growing. Equifax data shows that installment accounts increased 0.3 percent year-over-year, while total balances also rose by 2.7 percent.
Rising Auto Loan Delinquency Rates
As loan accounts and balances are increasing, delinquency rates are, too. The number of subprime borrowers more than 90 days delinquent increased to 4.26 percent in the first quarter of 2018, according to the Federal Reserve Bank of New York. For context, that number peaked at 5.27 percent in 2009 during the recession.
Fitch Ratings also reported that the 60-day delinquency rate for subprime loans hit 5.74 percent in February.
These numbers are a big part of the reason why lenders are tightening their standards and moving away from the subprime space.
What Dealerships Can Do in Tightening Subprime Market
Lenders have been tightening standards for auto loans for a couple of years now, and it looks like this will continue with subprime auto loan default rates on the rise. However, dealers can still succeed in subprime with some car sales best practices and a more active and careful approach. Here are some tips:
- Verify Income Every Time – Delinquency and tightening numbers show that taking extra care with subprime customers is never a bad thing. Dealers need to validate customer income with documentation and make sure they're selling them a vehicle that fits their budget. Earlier this month, the Federal Trade Commission charged a dealership group in the southwest with falsifying consumer income and down payment information on financing applications. The FTC alleges this lead to an increased default rate.
- Provide the Ability to Start the Desking Process Online – Athens Chevrolet in Georgia lets consumers complete credit applications on their website, which allows their F&I department to start the financing process before they visit the store. This should also help make sure each customer gets into a vehicle that fits their budget, and it speeds up the transaction time, which makes everyone happy.
- Let Auto Credit Express Help – You can also turn to Auto Credit Express and our dealer BDC services. Our dedicated call center can verify lead information, make sure they meet the standards you set forth, and prep buyers to be able to visit your store and buy on the same day. We'll set up the appointment with your F&I office and let them know what stips are needed, which takes some pressure off your store.
The Bottom Line
Auto Credit Express wants to help your dealership maximize the potential of its subprime department while making things easier, too. Our new car, used car, and subprime auto leads can drive serious buyers to your store, and our BDC, direct mail, and other dealer services can help you increase appointments, shows, and sales.
We all know the value of developing loyal customers, and subprime car buyers are some of the most loyal around. So, what are you waiting for? Learn more by calling us at 888-535-2277 or filling out our contact form online today.