Subprime Auto Loans Climb to Highest Level Since Financial Crisis

Alan Zibel and Annamaria Andriotis of the Wall Street Journal (subscription required) report that consumer loans to borrowers with bad credit, including those for cars and light trucks, are now approaching 40% of loans issued, the highest percentage since the start of the financial crisis in 2007-08.

Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014, according to data compiled for The Wall Street Journal by credit-reporting firm Equifax.

That amounted to more than 50 million consumer loans and cards totaling more than $189 billion, the highest levels since 2007, when subprime loans represented 41% of consumer lending outside of home mortgages. Equifax defines subprime borrowers as those with a credit score below 640 on a scale that tops out at 850.

Part of the increase in subprime loans is attributed to new companies that aren’t traditional banks entering that market. Large banks have reduced their portfolios of riskier loans due to increased scrutiny by regulators in the wake of the financial crisis. The new lenders say they are being more diligent than subprime lenders have been in the past, saying that they are only giving loans to borrowers in the top bracket of bad credit scores and actually reviewing bank account and income histories.

In case you’re nervous, subprime mortgages, whose derivative securitizations were at the heart of the financial meltdown, and which made up about 20% of mortgages in 2008, have not increased and currently make up less than 1% of mortgages issued.

Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can get a parallax view at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks for reading – RJS