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Tess Vigeland: I say subprime loans, you probably think mortgages. But subprime reaches beyond the housing market. There’s a whole world of borrowers with less-than-perfect credit out there. And a new report out from the credit agency Experian says that more of them are getting car loans.
Now on the upside, it’s a sign that the credit market is continuing to thaw out. The downside? Well we do know what subprime meant for homeowners.
Marketplace’s Alisa Roth follows the auto industry and we asked her to find out what those new figures really mean for consumers and lenders.
Alisa Roth: What Experian found is that 8 percent more subprime borrowers got loans in the third quarter of this year than in the same period last year. This is the first time the subprime auto loan segment has grown since before the financial crisis.
Melinda Zabritski: What this is really saying is we’re seeing an increased confidence in the automotive market.
Melinda Zabritski’s in charge of automotive credit for Experian. She says part of that confidence is that fewer car buyers are delinquent on their loans.
Zabritski: We’re seeing lenders begin to originate again in that higher risk sector. We’re seeing increased competition for automotive loans.
Just like with other kinds of consumer credit, it was hard to get car loans during the financial crisis. But now credit is starting to thaw, so auto lenders can get cash from capital markets again.
That business is picking up is good news for the auto industry. According to the dealer’s association, more than 90 percent of all new car sales are financed in some way. More than a third of all car loans in the third quarter went to subprime borrowers. This summer, GM positioned itself in that market; it bought AmeriCredit, which specializes in subprime auto loans.
Alan Baum is an auto industry consultant in Michigan. He says subprime lending for cars is less risky than subprime lending for homes, because a car’s value is easier to determine.
Alan Baum: A home is more linked to the marketplace, whereas a vehicle has greater intrinsic value. So the risk to the financial community is less.
He says a strong market for used cars is also helping. Since people can get more money on trade-ins, they have to borrow less for their next car.
I’m Alisa Roth for Marketplace.
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