Equifax sees less subprime paper as industry passes $1.25 trillion in outstanding balances


The auto-finance industry passed another milestone as Equifax determined current portfolios collectively now exceed $1.25 trillion.

However, subprime paper isn’t pushing the industry-wide figure higher as much as volume within that segment did a year ago.

To get to the $1.27 trillion overall figure reported as of May, Equifax indicated dealerships and finance companies generated 10.2 million contracts, totaling $230.6 billion, through the first five months of this year. Those figures represented increases of 1.1 percent and 3.2 percent, respectively.

Equifax pointed out that retail installment contracts constituted 85.9 percent of all originations and 89.4 percent of all new balances booked through May. More details on vehicle leasing in a moment.

Analysts drilled deeper and found that 2.33 million contracts were originated through May to consumers with a VantageScore 3.0 credit score below 620, generally considered subprime accounts. That volume marked a 2.5-percent decline year-over-year.

That newly originated subprime paper had a corresponding total balance of $41.7 billion; a 1.8 percent decrease year-over-year, according to Equifax.

Through May, Equifax determined that 22.8 percent of retail installment contracts were issued to consumers with a subprime credit score, and they accounted for 18.1 percent of origination balances. By that juncture a year ago, analysts pegged the subprime account share at 23.7 percent and balance share at 19.0 percent.

Equifax also mentioned the average amount finance for all contracts originated in May came in at $22,946, a 2.5-percent lift year-over-year. The average amount financed in a subprime deal ticked up just 0.82 percent year-over-year, settling at $18,306.

“As further evidence of the strong automotive market that has been present ever since the end of the recession, total outstanding auto portfolio balances have now eclipsed the one-and one-quarter mark, reaching 1.27 trillion,” said Gunnar Blix, deputy chief economist for Equifax.

“While total originations are down slightly from the previous two years, clearly the solid economy continues to make shoppers comfortable in absorbing not only higher prices of vehicles, but also in larger balances on their loans,” Blix continued.

Latest insights on leasing

While not as prevalent as activity in the prime space, Equifax gave a rundown of subprime vehicle leasing through the first five months of the year. Like origination of retail installment contracts, analysts found that subprime leasing softened year-over-year, too.

During the first five months of the year, Equifax said 154,800 vehicle leases were originated to consumers with a VantageScore 3.0 credit score below 620. The volume represented a 3.6-percent decrease year-over-year.

Analysts added these newly issued leases have a corresponding total balance of $2.67 billion, a 3.9 percent decrease year-over-year.

Through May, Equifax pointed out that 9.3 of auto leases were issued to consumers with a subprime credit score. A year earlier, the share stood at 9.6 percent.

Looking at the overall leasing segment, Equifax reported that more than 1.67 million vehicle leases, totaling $27.2 billion, were originated through May. While the volume figure remained steady, analysts spotted a 1.9 percent dip in balances, year-over year.

Equifax indicated vehicle leases accounted for 14.1 percent of all auto accounts originated through May and 10.6 percent of balances.

Analysts closed by noting the average origination balance for all auto leases issued in May came in at $16,325, a 0.89-percent decrease from May of last year.

The average subprime lease amount was $17,300, a 0.28-percent increase over a year ago.

Equifax explained that lease origination values reflect the contract amounts only and exclude expected vehicle residual values.