Auto lenders tightened approvals for subprime originations in the third quarter as auto loans and leases to borrowers with subprime credit fell, according to the third-quarter Household Debt and Credit Report from the New York Federal Reserve.
At the same time, delinquencies increased overall, particularly for younger borrowers, the report said. The upshot for dealers is they likely will have a harder time getting customers with subprime credit financed for used cars – customers with subprime credit are already all but priced out of new-car purchases, analysts said.
“Maybe some people are overextended because they bought cars during the period of high prices that they couldn’t afford,” a researcher for the New York Fed said in an online press call on Nov. 5, when the report was published. Federal Reserve protocol is not to directly quote their researchers by name.
Subprime share down
Overall, auto loan and lease originations combined were $183.9 billion in the third quarter, roughly flat – down 0.2% to be precise – vs. the third quarter of 2024.
Within the total, subprime loans and leases accounted for a share of 15%, down from a subprime share of 16.9% a year ago. Before the pandemic, in the third quarter of 2019, subprime share was 18.9%. The New York Fed defines subprime as credit scores below 620.
Only the two highest-scoring categories, at the top end of the prime-risk range, increased share of originations in the quarter vs. a year ago. The super-prime tier, with credit scores 760 and above, increased to $73.4 billion. That’s an increase in volume of 6.4% vs. a year ago. In terms of share, super-prime was 39.9%, up from 37.4% a year ago.
Two-track lending
Originations in the next-highest credit tier, in a range of 720 to 759, increased 3.5% to $29.6 billion. Originations in all other risk categories declined in Q3 vs. a year ago, according to the report.
The share of auto loan and lease delinquencies past due by 90 days or longer was 5.02% in the third quarter, the highest it’s been since the second quarter of 2020. A year ago, the 90-day-plus delinquency rate was 4.59%.
The data indicates “some tightening in auto loans, in particular at the lower end,” a Fed researcher said in the call.
The authors of the New York Fed household report are Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw.
