The mission of the Consumer Financial Protection Bureau (CFPB) is to protect consumers from unfair, deceptive, or abusive credit practices. However, the CFPB isn’t just a great resource for consumers. The information the CFPB gathers also helps those who are in the business of extending credit to consumers.
The CFPB has shared several trends taking shape in the world of consumer credit. These insights cover a variety of consumer credit markets, including auto loans, credit cards, mortgages, and student loans. By tracking these trends over time, the CFPB can monitor and warn lenders of potential problems in the market.
In this series of articles we’ll review each of the four markets being monitored by the CFPB, starting with auto lending. Do you extend credit to consumers for the purchase of a vehicle? If so, you might be interested in the following recent auto lending trends and how they could affect your business.
Auto lending is up among all age groups
There’s no age limit on needing transportation but not having the ability to pay in full up front. People of all ages and stages of life finance vehicles through leases and loans. That fact is supported by the CFPB’s 2019 data, which shares positive year-over-year growth for all age groups.
- Younger than 30 years old: Up 9.14% over 2018
- Ages 30 to 44: Up 10.95% over 2018
- Ages 45 to 64: Up 9.50% over 2018
- Age 65 years and older: Up 10% over 2018
What does this mean for you? Increasing demand for auto loans within all age groups means more customers for you. As buyers mature from sportscars to minivans to sedans, they should come back to you time after time for their vehicles.
Auto lending is up among all income levels
You may think high-income households don’t need auto loans. But according to the CFPB, more people within all income levels are financing their vehicle purchases over time. Just take a look at the data comparing the volume of loans from July 2017 to July 2018 based on income:
- Low-income borrowers: Up 11.29%
- Moderate-income borrowers: Up 8.35%
- Middle-income borrowers: Up 9.58%
- High-income borrowers: Up 6.29%
What does this mean for you? This is great news for all auto lenders, but especially for dealerships that serve low- to moderate-income buyers. More low-income adults are buying vehicles on credit, whether that’s through a financial institution or on buy here, pay here terms. This might mean more people at this income level are qualifying for credit, which translates to more customers for you!
Auto lending is up among all credit score profiles
One of the goals of the CFPB is to provide education and resources to help people improve their credit scores. However, the CFPB’s auto lending data shows that even individuals with the lowest credit scores are qualifying for credit. In fact, lending was up among all credit score levels from January 2018 to January 2019.
- Deep subprime (credit scores below 580): Up 16.90%
- Subprime (credit scores of 580 to 619): Up 19.16%
- Near-prime (credit scores of 620 to 659): Up 8.98%
- Prime (credit scores of 660 to 719): Up 7.83%
- Super-prime (credit scores of 720 or above): Up 8.72%
What does this mean for you? Apparently, even borrowers with higher-risk subprime credit scores are securing auto loans. This could mean that lenders are looking beyond scores when making decisions about extending credit. Perhaps they’re evaluating borrowers based on their reliable histories making on-time payments for things like utilities or mobile phone service.
The benefits of reporting all payment agreements
More and more organizations, including buy here, pay here dealerships, are reporting payment data to the four major credit bureaus. Consumers who pay these obligations regularly and on time normally don’t reap the benefits for paying responsibly. Reporting to the bureaus with the help of a credit reporting service like Datalinx helps these businesses reward these individuals. This data can even help to improve a deep subprime or subprime credit score.
On the flipside, nontraditional auto lenders can also report consumers who miss payments or default on their loans. This will give other potential lenders a better, more complete picture of that person’s payment history. If you want Datalinx to help you report your nontraditional credit data to the four major credit bureaus, give us a call today.
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