U.S. auto loan delinquencies fall farther

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Published: August 31,2010

Tags: automobiles, banking and finance, debt, loans, trucks, vans, vehicles

SCHAUMBURG, Ill. — Automotive loan delinquencies dropped during Q2 2010, marking the second consecutive quarter that showed a year-over-year decrease in quarterly delinquencies. Lenders also made a higher percentage of loans to nonprime and subprime customers, a sign that lenders are beginning to loosen credit.

The 30-day delinquency rate fell 5.88 percent, from 3.07 percent in Q2 2009 to 2.89 percent in Q2 2010. The 60-day delinquency rate fell 11.85 percent, from 0.8 percent in Q2 2009 to 0.71 percent in Q2 2010. The findings are part of an in-depth analysis of trends impacting the automotive industry entitled, State of the Automotive Finance Market, First Half of 2010.

“Seeing a drop in delinquencies year-over-year is a positive sign for both the lending and automotive industries,” said Scott Waldron, president of Experian Automotive. “The fact that we’ve seen a drop for the second consecutive quarter is an indication that there could be a light at the end of the tunnel for the economy.”

Lending institutions appeared to loosen credit, providing a higher percentage of loans to customers in the nonprime and subprime risk tiers. The percentage of nonprime and subprime loans for new vehicles grew a combined 4.5 percent, from 16 percent in Q2 2009 to 16.73 percent in Q2 2010. However, lenders were still cautious about new vehicle loans to the lowest risk tier, deep subprime, as the percentage of those loans dropped from 1.56 percent in Q2 2009 to 1.48 percent in Q2 2010.

“It appears as though lenders are testing the waters with customers who have less than stellar credit,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle risk tiers. This could be a very positive sign for the auto industry, as it could open loans to a wider group of potential customers.”

Other findings include the following:

• The average credit score for purchasers of a new vehicle fell two points, from 774 in Q2 2009 to 772 in Q2 2010. The average credit score for purchasers of a used vehicle rose two points, from 677 in Q2 2009 to 679 in Q2 2010.

• The average amount financed for a new vehicle jumped by $883 to $25,222. The average amount financed for a used vehicle jumped by $1,027 to $16,581.

• The states with the highest average credit scores for consumers applying for new vehicle loans were Minnesota (803), Wisconsin (796), Iowa (795), Nebraska (791) and Montana (789).

• The states with the lowest average credit scores for consumers applying for new vehicle loans were Mississippi (749), Nevada (750), Louisiana (751), Texas (752) and North Carolina (759).

A Market Insight Snapshot featuring a more detailed analysis of Experian Automotive’s findings can be downloaded at www.experian.com/automotive/auto-resources.html.

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