We all remember the financial crisis that began several years back. At its core was a splurge of subprime lending for housing loans. The housing bubble burst, triggering a collapse of the mortgage-backed securities market. Apparently, those types of loans still exist in the automotive industry, and the market share for these types of "nonprime, subprime, and deep subprime," loans has grown 13.6 percent compared to the third quarter a year ago.

According to an Automotive News report, high-risk lending expanded to 24.8 percent of total loans in Q3, up from 21.9 percent for this time last year. As this level increased, average credit scores of borrowers dropped to 755, down from 763 a year ago. In that time, the average financing amount increased $90 per vehicle, to $25,963.

At 818, Volvo maintains the highest per-owner credit score, while Mitsubishi has the lowest, at 694. The highest rate of borrowers was at Toyota, with 14 percent of the market, followed by Ford with 13.1 percent and Chevrolet at 11.1.

Part of the growth in lending is the willingness to offer longer-term loans. Dealerships are starting to offer 60, 72 and 84 month borrowing periods. Carmakers are reluctant to do so, as it takes the customer off the market too long, yet the seven-year loan period is the fastest-growing category in automotive borrowing.

It all points to an industry that is eager to maintain the wave of recovery even at the risk of potentially aggressive lending practices.


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  • 36 Comments
      Car Guy
      • 2 Years Ago
      "yet the seven-year loan period is the fastest-growing category in automotive borrowing" You haven't seen anything yet. With the way car prices are rising and expensive regulations going into effect, you will see the 10 year loan.
        tinted up
        • 2 Years Ago
        @Car Guy
        The 10 year loan is already in effect for cars that are actually big ticket. Car dealers will be very hesitant to embrace longer terms than 7 years because of the reasoning mentioned in the article. It is hard enough getting someone out of a trade when they are a year in on 84 months, I couldn't imagine trying to get someone un-buried on a 10 year....
        wilkegm
        • 2 Years Ago
        @Car Guy
        Perhaps we can take into account the fact that the useful lifeexpectancy of a car continues to rise. I remeber 20 years ago, cars that were 6 years old and had over 100k mi were about worthless. Now, I don't even blink about 150k mi. Those of us who mile out cars can easily run 300k out of just about anything, with good maintenance
      jason_golden
      • 2 Years Ago
      My motto is: If I can't budget my car payment on a 48 month term, I need to either step down to a cheaper car, or step up with a bigger down payment. I've done the 60 month loan before...and regretted it. With my excellent credit and current 0.9% interest car loan, all is well. 48 months makes sense for me, as I drive a lot and run cars "out of warranty" in 48-50 months. I don't want to make payments on a car with no warranty remaining! Scary when I see friends financing a car for 5+ years, running up the miles...knowing full well...they will be tired of that car in 2-3 years.
        Basil Exposition
        • 2 Years Ago
        @jason_golden
        I guess everyone has a different threshold. Personally, if I can't afford the car cash, I don't buy the car.
      modalita
      • 2 Years Ago
      No surprise here with the price point of most vehicles now. You get into a $25K car 4K down...that puts you just under $400 a month at 5 years. Seeing most of the new cars on the road here in Dallas...$25K is slumming it and instead of better budgeting their choices, buyers look to other options to getting "what they deserve"....regardless of whether they can afford it or not. That said- these buyers who forced into one of two camps. They can lease a vehicle or stretch the term.
      icemilkcoffee
      • 2 Years Ago
      Subprime lending is actually not a problem. It only became a problem in the housing market because we had these ridiculous negative equity loans, balloon loans, interest-only loans, take-out loans, and the like, which were issued on the assumption that the housing market would continue on its growth curve forever. There is no such equivalence in the car market, nor are people relying on their cars for equity. So I really don't see any danger. Leet's be honest here- car loans have always been far easier to get than pretty much any other loans. If you're walking on your hind legs you can probably get financed.
      Hoale
      • 2 Years Ago
      Student loans are going to be the next big bubble to burst along with the under payed or unemployed graduates that take them.
      reattadudes
      • 2 Years Ago
      what an utterly ridiculous story, or non-story. first, there is NO correlation between easy mortgage money (and the insinuation of foreclosure) and the auto financing business. zero. I haven't put one penny down on a vehicle (and never would) since 1980. oddly, they keep giving me more. being a car nut like most people here, I usually have an average of four open car loans at any given time. I'm a single guy. not having an expensive wife or money ******* children leaves a lot more money for car payments. even in the dark days of the financial crisis, repo rates on vehicles were a tiny fraction of what foreclosure rates were on homes. you don't need to own a home; you DO need a car. and the author's comments about the terms of auto financing looks like they were written in 1975, not 2012. well over half of the auto loan paper written is of the 60 month and longer variety, and its been that way for DECADES.
        icemilkcoffee
        • 2 Years Ago
        @reattadudes
        "you don't need to own a home; you DO need a car." Huh? Come again?
          • 2 Years Ago
          @icemilkcoffee
          [blocked]
          S.
          • 2 Years Ago
          @icemilkcoffee
          I live in a VAN. Down by the river!
          montoym
          • 2 Years Ago
          @icemilkcoffee
          I've always said, you can live in your car, but you can't race your house. Not really, but I did hear that somewhere sometime.
        luigi.tony
        • 2 Years Ago
        @reattadudes
        So you are paying on FOUR vehicle, and you are single. AND you brag about never putting a penny down. Are you a Politician? If not, you would do great in Washington D.C.
        Ryan
        • 2 Years Ago
        @reattadudes
        Just for the record, even as a HUGE car guy, I place a higher value on my relationships with people (yes, including my wife and children) then I do on owning 4 brand new cars on which I have loans. Different people have different priorities, I guess...
          S.
          • 2 Years Ago
          @Ryan
          He/She sounds like a really sad person
        hans
        • 2 Years Ago
        @reattadudes
        are you kidding? you have 4 car loans. you DO Need a car usually. but not 4. if you were to suddenly have financial difficulties, let me go out on a limb and say you might turn in at least 3 of those cars. that is what risky lending is, if your credit is bad normally they wont let you have more than 1 car loan... easy credit in general affects everything. we are getting back into a stupid easy credit environment whihc is why houses are even selling again, not to mention cars. look at GM, they just bought ally bank again and will probalby start sending out dumb loans by the thousands and go bankrupt again! and 5 year loans have been common , but 6-7 year terms have only been a recent thing.
          reattadudes
          • 2 Years Ago
          @hans
          thanks so much for telling me all about myself. I actually own eight vehicles, four of which I own free and clear. I've had four or more car loans at the same time since 1989, so suffice to say: 1) I have a pretty good track record with lenders, and 2) I'm prepared if I have a financial downturn. 3) I pay my vehicle loans as agreed. anytime a lender grants a loan for anything, risk is involved. that's a given. but let me let you in on a little secret: a loan buyer can get into as much trouble with their superiors if they are too conservative buying paper as they can be being too loose. lenders have a percentage they expect to be bad debt. with auto loans, its in the 2%-5% range. when it gets around 3% they loosen up. when it gets towards 5%, they tighten up. lenders make no money with their money until its out on the street. I owned a new car dealer for over ten years, and I'd like to think I've learned a thing or two about how the auto financing business works. and we were writing 72 month contracts in the late 1980s. about half of the paper we wrote was of the 60-72 month variety, even in the 80s. this is nothing new. when it comes to 84 month financing, you might be shocked who gets approved for those. no, not the subprime folks. its those with a 750 and up FICO, many times retired folks.
        Car Guy
        • 2 Years Ago
        @reattadudes
        4 car loans going? You are a bankers best friend.
      billfrombuckhead
      • 2 Years Ago
      More anti-American car industry propaganda! Hyundai's finance arm does the most subprime financing but they have picture of a Chrysler showroom with a Wrangler, a model which tends to have customers with very high credit scores.
      michigan
      • 2 Years Ago
      We should all be glad there are suckers out there willing to lease a car. When they turn them in after 3 years that's more used cars on the market bringing their prices down. Good for those of us who pay cash for used cars and aren't duped into financing them
      Jake
      • 2 Years Ago
      "...60, 72 and 84 month borrowing periods." Yes, but it is the fault of the wealthy that the poor stay poor.
      icon149
      • 2 Years Ago
      I think this is a horrible trend, yet i'm not sure that it is as bad as it seems at first glance. modern cars last a long time, much more so than the cars of the mid 90's and we won't talk about anything built during the 70's or 80's. those were junk. So having a long term loan isn't so bad if the owner is going to keep the car for 10-15 years -my car is 11 years old now and i fully expect to drive it for at least another 3-4yrs. The real problem is going to be when these people who are going to be upside down on teh loan for at least 5 years, trade the car in every 3 years to get a new one and they just roll over what they owe on the last loan into the first. That will eventually end in individuals owing 20k on a car worth 3k.
      mayonayzejr
      • 2 Years Ago
      I was shopping cars a few weeks ago and was shocked to see how many vehicles could be had at 0% financing. Most others were still available at 2% or lower. It would seem that if someone wants to float me an interest free, or damn near interest free, loan then I would be a moron to pay cash for a vehicle. Supposing you comprehend time value of money concepts, feel free to ignore any moron telling you to pay cash for a car in this current interest rate environment and go get a car! There are some amazing vehicles out there right now! ;)
        Hoale
        • 2 Years Ago
        @mayonayzejr
        0%, 2%, 6%, that's not the killer for most people...its the depreciation on new cars. Most people shouldn't be financing a brand new car that depreciates so quickly in the first few years of ownership.
      rallybug
      • 2 Years Ago
      The other problem is people needing to finance for longer periods due to the cost of cars today. My f-i-l has a 1992 Mazda 323 that was sold on the lot as a stripper model - it didn't even have a stereo, although he did add the antenna as an extra. Where are the new stripper models without all the technological doo-dads that will go wrong expensively a few years after purchase? I'd be interested in a new car if I could choose exactly how I wanted it built, rather than having to pay $1000 for a package of 4 or 5 items, where I only want one of them. I don't want/need power windows, touch screens, I can survive without central locking, too.
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