Today’s poor-credit consumer just isn’t the same; it could be your next door neighbor, your local plumber or even a college professor. While the typical profile of a credit- crunched consumer is an unemployed individual who displays a pattern of delinquency and defaulting on their loans, the recession has turned hard-working middle homeowners into today’s poor- credit consumers.
A recent white paper by Spireon, a company specializing in collateral management systems (CMS), discusses how the profile of a credit-challenged consumer looking to purchase a vehicle has changed in today’s economic down turn and how its up- kicked the re-birth of subprime loans.
Due to the recession, many consumers’ credit scores were destroyed after they were forced into bankruptcy. But despite what their credit scores indicate, the majority of these consumers are responsible middle class homeowners. Now, as the economy begins to recovery, these credit-challenged consumers are improving their finances but unfortunately are still burdened with low FICO scores that prevent them from getting traditional auto loans. In order to meet the needs of the new segment of poor-credit consumers, lenders are starting to offer more subprime loans.
As the economy slowly recovers, more and more consumers are purchasing vehicles. An increase in automotive financing has also emerged. In fact, in 2013 lenders are expected to start loosening their credit standards to help maintain growth in the auto finance market, according to DBRS a credit rating research firm. Couple an increase in vehicle sales with an increase in automotive financing, and you have the resurgence of subprime auto loans.
This trend has grown tremendously over the past year. According to a recent study by Experian, there has been an 18 percent increase in subprime financing for new vehicle purchases and close to a 40 percent increase in deep subprime lending to customers with 600 FICO scores and lower. Borrowers with low credit scores looking to purchase a vehicle are no longer denied loans, instead they are being offered subprime loans.