As captive lenders flex their stuff in market share, we’re seeing a drop in subprime auto loans.
Change in the Air – for Better or for Worse?
As much as the COVID-19 pandemic has impacted everything, and we’re sure everyone has their news feeds full of updates, we might have never guessed that credit scores would be on the rise during this time.
Experian’s State of the Automotive Finance Market report for the third quarter of 2020 found that the average credit score for car buyers is climbing. Although the United States reached record high layoffs due to shutdowns, it seems that borrowers are keeping track of their credit. It also helps that the credit bureaus are allowing free weekly credit reports until April 2021.
The economy and auto market took a huge hit at the beginning of the year. Despite that, the average FICO credit score went up from 708 in April 2020 to 711 in July. According to The Wall Street Journal, many borrowers during this time were forced to take hardship deferments for their mortgages, car loans, and other credit – but the average credit score rose anyway.
The rolling out of financial assistance programs, with an unemployment insurance bonus each week of $600 on top of their wage, could have allowed many borrowers to pay down their debts despite being unemployed. This may have contributed to the bump in consumer credit scores.
Deferments freeing up monthly obligations may also have allowed borrowers to reallocate their money to debt that was previously left on the wayside, boosting their credit rating. At the very least, unemployed borrowers may have been able to keep up with their bills thanks to the CARES Act.
While credit scores are rising, the number of borrowers in the deep subprime credit scoring category seems to be dwindling.
Deep Subprime Reaching Record Low
Borrowers with deep subprime credit (scores of 300 to 500) are only making up 2.63% of all auto loan originations in the third quarter of 2020, according to Experian. In 2015, they accounted for 4.84%.
The biggest drop in the last five years was from 2019 to 2020 – a whole 1.09% drop. It’s been declining steadily since 2015, but most of the decreases up until this year were only around half a percent. Subprime borrowers (scores of 501 to 600) have lost some of the market, too. In 2019, they made up 18.30%, coming in at 2020 with 16.60% of the total loan risk distribution.
Whether this is the result of credit scores increasing, subprime lenders tightening their requirements for financing, or something else entirely, we’re seeing a drop in bad credit borrowers getting car loans.
However, this doesn’t diminish the fact that there are still many borrowers with credit issues that need financing. It could be that they aren’t sure what dealerships have these resources, and the shutdowns in recent months could have reduced transparency on what resources dealers have. Or, dealerships are lacking in subprime leads.
If your store isn’t taking advantage of this loyal and motivated market, consider it now. Subprime borrowers are often grateful to the dealers that helped them get back on their feet, and can become lifetime returning customers.
Get Into the Subprime Game!
If you want to stay current in the world of subprime financing, you have to have the prospects available. It's so much easier to know that your leads are taken care of and that all your sales staff has to worry about is selling cars. That's exactly what you get when you sign up for subprime leads with Auto Credit Express!
We have many programs available to meet your needs and get prospects coming through your doors. When you work with us, we can tailor leads to fit your criteria, so that you're getting consumers who are truly ready to buy. Plus, our automotive BDC call center verifies leads, making sure that they're prepared to come to you ready for the next step.
If your store is already in the subprime game, there's no denying that these are some of the most loyal consumers around, and they help those who are there for them when the chips are down. This means that the more subprime consumers you assist today, the more word of mouth your dealership can see for years to come. Subprime customers tend to return to the dealers that help them through tough times, and they may even send their friends and family your way, too!
Helping You Yesterday, Today, and in the Future
Here at Auto Credit Express, we've been a leader in the subprime automotive leads space for over 20 years. With all the ups and downs that the industry has seen in 2020, one thing has remained consistent – our commitment to our dealership partners. We know how trying it can be when you're not sure when your next sale is going to walk through the door.
We want to help you alleviate that stress by ensuring you have the leads you're looking for right at your fingertips. Whether you're looking for subprime prospects, fresh bankruptcy leads, or need to move your new and used vehicle inventory, we have you covered! Team up with Auto Credit Express and our sister service CarsDirect Connect for your chance to take full advantage of new clientele for 2021!
You can get started right now by calling us at 888-535-2277 or filling out our contact form online, and a sales team member will be in touch with you!