TransUnion’s 2016 auto loan forecast — including its projection that delinquency rates are likely to remain unchanged — should allow the subprime auto finance industry to maintain two of its most important positions that can satisfy both consumers and perhaps regulators, too.

Overall economic stability is likely to help finance companies originate more contracts with subprime consumers, who in turn can eventually elevate themselves out of lower credit tiers because of the resources to maintain repayment terms.

Here are the forecast details shared on Monday that helped TransUnion senior vice president and automotive business leader Jason Laky arrive at those assertions.

TransUnion’s forecast projects that delinquencies will remain stable throughout the next year (with normal seasonal variance), with delinquency levels unchanged at 1.11 percent between year-end 2015 and year-end 2016.

While delinquency rates stay flat, TransUnion is forecasting that auto loan balances will continue to rise, with average auto loan debt per borrower expected to increase from $17,985 in Q4 2015 to $18,509 in Q4 2016.

TransUnion forecasts the average balance will surpass $18,000 in Q4 2016, a growth of more than $1,000 over the past two years. By the end of 2016, auto loan debt per borrower will grow more than $3,500 from Q4 2009, when the average balance was $14,956.

And what about the subprime slice of the market?

TransUnion data shows that the number of auto loans has grown every quarter since Q3 2011. In Q3 2015 (the most recent data available), the number of auto accounts grew to 69.4 million, up 8.2 percent from 64.2 million in Q3 2014. The number of auto loan accounts has grown 15 million from Q3 2011 to Q3 2015.

Despite an increase in the number of auto loans, fewer subprime consumers (those with a VantageScore 3.0 credit score lower than 601) had an auto loan in the third quarter of 2015 than in 2009. In Q3 2009, subprime auto loans comprised 23.7 percent, or 14.8 million, of all loans. By Q3 2015, the subprime share of auto loans declined to 18.7 percent of the total, or 13.9 million consumers.

Of those holders who took contract back in 2009, there’s a chance a segment of that population no longer is even considered subprime, reinforcing an industry refrain about how subprime auto financing can help consumers get back on their financial feet.

“It’s a function of how credit scoring works. If credit scores work correctly, they should reward good financial behavior and decisions, which are as most credit scores indicate, paying your obligations on time, not taking on too much credit relative to your outstanding availabilities and prudently seeking out new credit,” Laky said.

“One of the things I think for subprime borrowers taking out an auto loan is to make the payments as expected. That probably more than anything will help move their scores out of subprime,” added Laky, who worked at a subprime auto finance company before joining TransUnion.

And whether or not it’s a consumer in the subprime credit bucket, auto loan holders are paying on their notes at a greater pace, and TransUnion thinks they will continue to do so.

As average auto loan debt levels rise, TransUnion sees minimal changes in the auto delinquency rate in 2016. Aside from quarterly changes as a result of seasonality, TransUnion forecasts auto delinquencies will remain near all-time low levels. Since auto loan delinquency peak levels in Q4 2009 (1.54 percent), delinquency rates have declined 28 percent.

“For the last two years, auto delinquency has remained low as consumers prioritized their auto loan payments,” Laky said. “Through the end of 2016, we expect the auto delinquency rate to remain stable at historic, seasonal norms. We believe we have reached a ‘new normal’ in auto delinquency and see no immediate cause for concern.”

Laky elaborated about that point during a conversation with SubPrime Auto Finance News.

“One of the best indicators of your ability to take on and meet your obligations on a new auto loan is your past auto loan performance,” he said. “If you’re a subprime or non-prime consumer getting into a loan, if you manage to stay up to date and limit the amount of times you’re delinquent on the loan, you put yourself in a great position, not just with your current lender but any other lender as you look for your next auto loan.

“They’re going to say, ‘Here’s a consumer who took out an auto loan obligation, managed to make their payments on time for a year or two or three years.’ Now they’re looking to get something new. They might not have taken a chance before but now that they have a proven track record, (the finance company) might say, ‘I’m going to do it,’” Laky continued.

“Subprime lenders, in effect, perform a very important role in helping consumers establish credit because as good prudent underwriters it is in their best interest, too, to ensure that the consumer gets the right amount of auto loan they need to balance the car want versus their ability to repay the loan,” he went on to say. “Subprime lenders that do that right and do it well with the consumer, help the consumer create a good track record of finance to give them opportunities later.”

TransUnion’s forecast also shed a little light on how those track records might form.

On a state level, auto delinquencies are expected to rise in 27 states from 2015 to 2016 with the locations projected to experience the largest increases in delinquency including:

— Hawaii: up 8.68 percent
— Oklahoma: up 7.06 percent
— Nebraska: up 7.02 percent

States projected to experience the largest declines in auto delinquencies include:

— North Carolina: down 6.05 percent
— Florida: down 5.85 percent
— Kentucky: down 5.15 percent
— Oregon: down 4.16 percent

No matter which states experience delinquency movements, might the industry have to address the term that makes some industry participants cringe? What about the much ballyhooed subprime bubble?

“The data appear to refute the apprehensions about a subprime bubble — and may even point to an opportunity for growth in subprime auto lending,” Laky said.

“While auto lenders are certainly extending loans and leases to consumers who present a higher risk, these consumers have been able to manage their auto loan obligations in line with expectations,” he continued.

“As auto lenders incorporate trended data into their analyses, we may see even more consumers receiving auto loans as lenders more effectively underwrite previously unscorable consumers,” Laky went on to say.

That potential growth — and finance companies taking on more risk — could be the other industry position leaders can tout in 2016. Laky explained the potential stems from overall market indicators that point to job growth and reasonable gas prices.

“With our stable, growing economy and the continued healthy pace of job growth, consumers are feeling confident enough to take on new auto loans, resulting in a healthy equilibrium between growing balances and low delinquency rates,” Laky said.

“Robust consumer loan performance, combined with declining gas prices and low interest rates, will allow lenders to offer slightly larger auto loans to consumers in the coming year without putting their portfolios at risk,” he continued.

“When those things come together, it’s really good for subprime lenders,” Laky went on to say. “It gives them the confidence to reach out and make loans to folks that when you’re worried about the economy, you might pull back and not make those loans. That confidence should lead to expanded lending across the whole credit spectrum.”