CARY, N.C. – Yes, subprime auto lending has grown in recent years. However, don’t sound the alarm bells.
This is not mortgage crisis 2.0. It’s probably not even subprime auto lending crisis 2.0.
The level of subprime auto lending is not even close to where it was in the mid-2000s, just before the financial crisis and automotive tumble at the end of the decade, according to TD Economics, an affiliate of TD Auto Finance and TD Bank.
Federal Reserve Board statistics in a TD Economics special report released Thursday show that subprime’s share of the total auto loan originations climbed as high as approximately 33 percent before the recession.
By the end of the decade, they had plummeted to the high teens, the data shows.
Subprime’s share has since climbed, but the 2015 reading shows it still a couple handfuls of percentage points where it was before the 2008 financial crisis, according to the report.
These types of loans are “well below where they were prior to the financial crisis” says TD Economics economist Dina Ignjatovic.
And the comparison to the mortgage crisis in not an apt one, she says.
“The level of subprime loans in the auto market right now is a lot lower than it was in the run-up leading up to that financial crisis, No. 1. And No. 2, the mortgage market and the auto market are completely different,” Ignjatovic said in a phone interview.
“In the mortgage market, leading up to the recession … people were getting a mortgage without having to show their proof of employment,” she continued. “It just wasn’t very prudent lending practices that were happening. There were teaser loans out there where you had a low interest rate for the first year or two, and then it jumped up. And I guess people didn’t realize their mortgage payments would go up by so much.”
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