For dealers and lenders, subprime lending can often be a double edged sword. Expanding the pool of available borrowers allows them to unload more inventory and bring in more revenue. On the other hand, subprime customers are more likely to be late on their payments, or default on their loans. Moreover, the subprime market is tied directly to the economy, and every downturn or uptick can have a significant impact on a company’s bottom line.
Luckily, the most recent reports are all trending positive.
According to an article in Auto Finance News, Manheim economist Tom Webb is upbeat about the yearly performance thus far for both subprime financing lenders and dealers. Not only that, he also believes that the industry should be in good shape for at least the next 12 to 24 months. “Dealers are creating additional demand by offering more flexible financing to consumers at the low end of the market due to enhanced credit availability from lenders.” In fact, according to data from Experian, 48.7 percent of all used-vehicle contracts written during the first quarter had terms at 60 months or longer.
Additionally, Webb said that demand for lower-priced vehicles is particularly strong in the auto auction market. As more and more people find jobs, the demand for such vehicles will likely continue to rise.
However, there may be some cause for concern. Longer-term loans given to people with lower FICO scores are not a sustainable recipe for success. While stopping short of calling it a crisis, Webb did admit, “there is a bubble forming.”
While it remains to be seen whether or not the market can remain strong, as long as employment continues to grow, and consumer demand remains steady, dealers and lenders should have no problem meeting even their loftiest sales goals for the year.
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