Will Lenders Overcome Impending Subprime Auto Loans Crisis?

A recent Fortune article paints a rather scary picture of a looming subprime crisis for auto lenders. As auto sales decline, automakers and lenders have taken to extending loans to more and more buyers with subprime credit scores. And that practice is already taking a toll. A staggering seven million borrowers in America are 90+ days delinquent in making their loan payments. That’s five percent of nearly $1.2 trillion in outstanding vehicle loans. Even worse, the fastest growing portion of these loans—rising 7.8 percent year after year—are to “deep subprime” borrowers with credit scores as low as 300.

While there is no magic wand for diffusing this particular crisis, it underscores how critical it is for auto lenders to improve the way they underwrite new loans and manage their loan portfolios. This means taking a harder look at which borrowers pose too great a risk and which do not. That, however, doesn’t mean just closer scrutiny of an applicant’s credit score. After all, someone with a lower credit score may actually be a better borrower than someone with a much higher score. To make a decision that is sound for the borrower and the lender, lenders must take far more information into account.

For years, Enova Decisions has been helping lenders make better, more informed underwriting decisions through data and predictive analytics. We have over 15 years of experience in meeting the credit needs of non-prime and thin file audiences. Therefore, we know what internal and external data sources beyond credit reports from the Big Three are most likely to predict ability and willingness to repay. In addition, we know how to leverage machine learning to develop more accurate scorecards for predicting creditworthiness while minimizing data costs. The result? Lower defaults, false positives, and manual review!

Want to learn more? Join us in San Diego at Auto Finance Innovation Summit, March 10–11, to discuss how Enova Decisions can help you meet the latest challenges facing lenders today. Or contact us today to learn more.

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Enova Decisions is an analytics and decision management technology company that was formed in 2016 to enable businesses in various industries, including financial services, healthcare, and telecommunications, to automate and optimize operational decisions, in real-time and at scale, through data, machine learning, and the cloud.