An increase in subprime auto lending and decrease in auto loan default signals a thaw in credit standards and increased sales for the auto industry. Image: CC madro 21/Flickr

Subprime auto lending saw a resurgence in the third quarter, according to the credit reporting agency Experian Automotive. Bad credit car buyers were also getting approved for higher loan amounts. At the same time that auto credit markets were loosening, borrowers defaulting on auto loans also declined.

Lending standards loosen

According to Auto Loan Daily, Experian analyzes lending based on three credit score tiers. In the third quarter, auto loans for new vehicles to consumers with “nonprime” or mediocre credit scores from 620-679 rose to 10.86 of all auto loans. Loans to subprime car buyers with credit scores from 550-619 made up 6.61 percent of the auto loan market, up from 5.66 percent at this time last year. Bad credit car buyers with credit ratings 550 and less increased from 1.46 percent to 1.59 percent.

Larger, longer loans

Additional indicators that the auto credit market is loosening up include bigger loans with longer terms. On average, the amount financed for new cars has increased $2,530 since the third quarter of 2009 to $25,273. Used car financing rose year-over-year an average of $977 to $16,706. The average term for auto loans increased by about 30 days. However, bad credit car buyers with credit ratings 550 and below showed a rise in the length of their terms by almost four months.

More borrowers paying on time

Delinquencies up to 30 days fell 8 percent in the third quarter to 3 percent of all auto loans. Delinquencies on auto loans up to 60 days dropped 17 percent to less than 1 percent. As delinquencies decrease and consumers cut debt and increase savings, banks and auto financing companies are starting to take bolder risks. The loosening auto credit standards lead analysts to predict that the auto industry could increase sales by 10 percent in 2011. However, bad credit car buyers with lower credit scores can still expect to pay higher interest rates on auto loans.

Sources

Auto Loan Daily

Associated Press

Daily Finance