CHARLOTTE, N.C. -

Add LendingTree to the list of industry observers and players who don’t see a “bubble” coming in the subprime auto finance space.

LendingTree analyzed the credit scores of subprime borrowers for vehicle installment contracts the company originated last year and found two distinct patterns. During the one-year period ending Dec 31, the monthly average of borrower credit scores for loans closed by LendingTree’s network of finance companies increased by 10 points.

Meanwhile, the monthly median credit score of those closed by network finance companies also rose by 12 points.

LendingTree classified the typical subprime auto loan borrower as individuals with credit scores at or below 640.

The company insisted this trend indicates that finance companies are not necessarily taking part in the risky lending practices that could lead to a “bubble” as some reports claim, although they are originating a larger number of subprime loans.

If subprime finance companies were taking on substantially higher risk, LendingTree Autos general manager Rick Finch explained the data would likely reveal lower credit standards needed for approval with approved aggregate credit scores declining over time.

Instead, LendingTree data shows an upward trend, suggesting finance companies are potentially being more selective within the subprime segment.

“Our data does not substantiate the likelihood of an upcoming crisis,” Finch said. “While the current concern over subprime auto loans that end up defaulting is reminiscent of the mortgage meltdown stemming from mortgage backed securities, the defaults are being monitored and controlled by the lending market.

“Although auto backed securities increasingly contain subprime loans, loan defaults are not rising at a rate that signal imminent danger,” he continued.

Finch acknowledged that Wells Fargo recently announced it would now place a dollar volume cap on its subprime auto contracts with these originations limited to 10 percent of the bank's overall auto loan originations, which totaled $29.9 billion last year.

But Finch also referenced a recent study by Equifax that not only refuted a potential subprime auto bubble but pointed out borrowers who originated a subprime auto contract had a median consumer credit score increase of 52 points over a three-year time period.

LendingTree emphasized that finance companies have better tools today with more data and technology to assist them in making safer decisions.

“The mentality of someone paying for a car is different than someone paying a mortgage,” Finch said. “The inability to afford a mortgage and losing a house results in the consumer looking for more affordable housing in the rental market, or seeking friends or family for help. 

“Missing car payments affects one's ability to get to work and continue earning a paycheck,” he went on to say. “People are more likely to make auto payments a priority based on need, and most seek to remedy car financing issues quickly.”