Auto Dealerships Do Subprime Car Loans

According to a recent report, the auto dealership industry is responsible for almost $50 billion in subprime new car loans that were issued last year. According to the Power Information Network (PIN), a subsidiary of J.D. Power and Associates, they have contributed to the pressures facing mortgage holders with these loans.

Almost two million new car buyers entered into new car loans that were in the subprime category, with indirect car loans making up 74% of all new car loans for 2006. The subprime market is made up of anyone with a FICO score of 650 or less. They have longer loan terms, lower down payments, higher loan to value ratios, and higher retail turn rates.

They do not think that the amount of risk associated with home loans will carry over to car loans, but they are aware that there is some risk there because of the issues that they are having with the subprime loans. Because auto loans have progressed from the one size fits all kind of mentality, the longer terms and lower down payments have become prolific throughout the industry.

The report says that sports cars, pickup trucks and compact cars have the highest risk of problems as they have the highest number of subprime auto loans. Full size and luxury car loans have the lowest percentage of loans.
 

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