Stimulus Checks Should Help, But Subprime Auto Loans Are At Record Lows

A used-car lot in Miami

The recovery in U.S. auto sales is leaving behind borrowers with subprime credit, according to the latest statistics from Experian Automotive.

It’s no surprise borrowers with subprime credit are falling out of the new vehicle segment, where subprime loans typically don’t account for a large share, even in good times.

But even looking at used vehicle loans exclusively, the share of borrowers with subprime credit is at a record low, according to Melinda Zabritski, senior director of Automotive Financial Solutions for Experian Automotive, in a phone interview.


Experian defines subprime as credit scores below 600. That share fell to a record low of 24.4% of used-vehicle loans in the fourth quarter of 2020, down from 28.3% a year ago, the credit bureau said.

And for the first time on record, borrowers in the riskiest category of “deep” subprime — defined by Experian as credit scores 500 and below — accounted for less than 2% of total loans and leases, new and used vehicles combined, for the fourth quarter of 2020.

Deep subprime share was 1.9% of that total, down from 3.4% a year ago. Experian published fourth-quarter statistics on March 4.

In 2021, tax refunds and government stimulus checks should help. Historically, the first quarter is usually as good as it gets for subprime auto loans, thanks to tax refund season.

But auto lenders and analysts are starting to worry what happens to subprime auto lending later this year, when that temporary effect passes.

Mahesh Aditya, CEO of Santander Consumer USA, a subprime auto loan specialist, said at the recent Vehicle Finance Conference of the American Financial Services Association that credit quality in 2020 was better than expected considering high unemployment. That is, measures like delinquencies were lower than expected.

He said consumers in 2020 clearly put a higher priority on making their car payments, higher than credit cards, for example.

“The other weird thing that happened in the pandemic is that we were able to improve credit quality across the board — prime, subprime, across the board — we found credit quality which means more creditworthy customers, higher FICOs, right through the pandemic,” he said at the conference, which was held online. FICO stands for Fair, Isaac Co., a commonly used brand of credit score.

“Those are trends we’re going to be watching extremely carefully in the next year once the stimulus runs out,” Aditya said. “The other thing, obviously, is how much of this is stimulus related, and how much of it is not. There’s the big question.”

I’m a reporter with 25-plus years experience writing about, and working in, the auto industry. After a journalism degree at the University of North Carolina-Chapel Hill,