by Jon LeSage, Editor of Used Car Market Reports
Availability of credit for new and used car buyers is at the heart of strong sales gains being made – including loans to buyers with subprime credit scores, usually below a 640 credit score. Also growing is deep subprime lending, in which credit scores are generally below 550.
Subprime loans dried up after the recession and have been coming back strong – and used vehicles is where those buyers are going, according to a USA Today feature.
Subprime car shoppers are choosing used cars over new cars by an almost 2-to-1 margin, according to Experian Automotive. Dealers say this is because used cars generally are less expensive and carry lower payments now that used vehicle values are typically dropping below new car prices.
In Q1 of this year, 63.2% of loans were for used cars, and the average loan amount was $17,532, Experian said. For new cars sold during that time period, the average loan was for $26,648.
One of the challenges for dealers during this funding trend has been vehicle repossessions. In Q1 of 2013, repossession were up about 17% over the same period last year, Experian Automotive said.
Credit scores are not the only thing to look at better manage risk – a customer’s car credit history is a very good place to start. One to look for people who might have had a mortgage problem during the recession. Other factors being looked at include employment stability, debt-to-income ratios, and the amount that should be set for the down payment.
Lenders are doing better with subprime loans today than they were five years ago. There are more lenders on the market, which helps the market stay competitive. Lenders have more confidence and are willing to change their methods, including taking trade-ins as part of the loan package.