NY Fed warns about rise of subprime auto loans

11/30, 7:39 PM (Source: TeleTrader.com)

The increased level of distress associated with subprime car loan delinquencies is of "significant concern," researchers at the New York Federal Reserve said in a paper published on Wednesday. This is especially worrying as the market continues to grow despite the fact that the number of borrowers in arrears is rising, the report warned.

The auto loan market grew to $1.135 trillion in the third quarter of this year, indicating that 2016 will see the strongest rise since at least 1999, when the data series begins. While most of these loans are made to highly creditworthy borrowers with an Equifax score of 760 or higher, the number of loans provided to subprime borrowers, with credit scores below 620, has risen considerably in recent years. During the financial crisis, this figure dropped, but last year it surpassed the pre-crisis peak and rose to roughly $275 billion in value this year, data showed, while the rate of subprime auto loans delinquent for over 90 days has climbed, too.

Even though the balances of subprime loans are slightly lower on average, the development could have serious consequences for affected households if the situation deteriorates, researchers concluded.

Teletrader Newsroom / IB