The bad economy and unemployment have affected consumers’ ability to pay their mortgage and other bills. With so many foreclosures, it’s no surprise that a lot of people’s credit scores took a hit recently. While bad credit may be a new reality for some, it makes it more difficult to get approved for a car loan.
In the auto finance world, lenders refer to shoppers with bad credit as subprime, which means they generally have a FICO score less than 640. In 2007, these car shoppers had little trouble getting approved for an auto loan. Their car loans totaled more than $51 billion in 2007, according to CNW Research.
In 2008, that amount totaled only $12.48 billion and $8.27 billion in 2009. In 2010, this number actually increased slightly. Subprime car shoppers were approved for auto loans totaling $8.99 billion in 2010, CNW Research reports.
The average vehicle financed by a subprime auto loan had a book value of about $8,300 in 2010. Car shoppers with bad credit paid the most at franchised new-car dealerships, averaging $9,554 per vehicle. The average amount financed at independent dealerships and buy-here-pay-here lots totaled $7,582. Subprime private party vehicle sales averaged $6,588.
CNW found that there were 1.27 million vehicles financed through subprime auto loans in 2010. The subprime vehicles totaled about 7.6 percent of all used car acquisitions, which is up from 7.3 percent in 2009 but still down from the pre-recession level of about 33 percent. CNW Research predicts that subprime auto lending will account for about 20 percent of sales in the next three years.