Auto Lending Delinquencies Are Relative to Record Market

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More than seven million borrowers were at least 90 days behind on their car loans at the end of last year, reported from a Federal Reserve Bank of New York study. But it’s all a matter of perspective. Looking at that record figure through the lens of historically high auto lending, it’s not quite so scary. The data also points to nearly 90 million people who have taken out some form of auto loan or lease, the highest number ever recorded, which began in 1999. Car financing jumped $53 billion in 2018 alone to reach $1.27 trillion, which is also a record.

Much of this lending has been taking place at the upper credit score buckets. Fully, 30% of the $1.27 billion in outstanding debt was originated to borrowers with credit scores of 760 and up, according to the Federal Reserve Bank of New York. Nonprime borrower loans outstanding declined 22%. At the same time, borrowers with a credit score of less than 620 increased delinquencies to more than 8%, while prime and super-prime borrowers’ delinquencies remain low and stable.

Currently, the nonprime market is dominated by captive lenders, and consequently, they experience higher delinquency rate compared to banks and credit unions – even after controlling for borrower credit scores. That means credit unions could fare better than the auto finance companies with lower credit score-members, and there’s greater opportunity for income due to greater spreads based on risk pricing.

Except for small banks, credit unions have the smallest fraction of their auto loans in nonprime borrowers. This stat may not play well politically, between the credit union mission and the bankers’ calls for credit unions to prove they serve those of modest means to justify their tax exemption. Open Lending can help put your mind at ease about nonprime auto lending with our Lenders Protection™ default insurance., the website for Callahan and Associates, recently reported that overall consumer loan originations increased 9.1%. Credit unions captured 20.5% of the auto lending market in 2018, yet most of that is prime lending. Credit unions can fulfill their mission, earn a greater spread and differentiate themselves through safe and sound practices in nonprime auto lending. 


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