Subprime Lending Experiencing Continued Growth

Loan Plus CMS

The auto industry is experiencing continued sales growth, with June 2013 being its best month since 2007. The key factors driving this sustained growth is more readily available credit for new and used car buyers and an increase in subprime lending.

"Credit is definitely playing a key role in the industry's rebound because of the availability of easy financing, not just for those with perfect credit but also for those who don't have the good scores," said Karl Brauer, senior analyst at Kelley Blue Book, recently told USA TODAY.

During the recession, loans to buyers with subprime credit scores were few and far between, however, subprime lending has significantly increased since the recession, now making up 11 percent of all new car borrowing.

With the job market recovering and less restrictions on subprime lending, banks and credit unions are more willing to take on credit-challenged customers, which have contributed to the growth in auto sales. In fact, sales are projected to reach around 16 million vehicles for this year – a vast improvement from the 10 million new vehicles sold in 2009.

Credit-challenged borrowers that were once hesitant to purchase a vehicle are now purchasing new and used vehicles at an increasing rate. According to Experian, subprime borrowers are purchasing used cars by an almost 2-1 margin. During the first quarter, 63.2 percent of loans were given for used cars, at an average of $17,532, according to Experian. The average loan for a new car was around $26,648.

However, there has also been an increase in vehicle repossessions. In the first quarter of 2013, vehicle repossessions were up 17 percent. To help combat vehicle repossessions and manage risk, more lenders are turning to collateral management systems (CMS). CMS provides lenders with a continual stream of real-time data that automatically tracks and communicates with borrowers quickly – improving asset recovery rates. Moreover, CMS can help improve borrower behavior and ultimately help lenders collect more payments on time.

To learn more about CMS, click here.

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