Irresponsible subprime lending is often blamed for the credit crisis that our country is just now emerging from. The fallout caused many lending institutions to tighten lending requirements, cutting off those bad credit loans. They are beginning to reemerge.
Subprime borrowers accounted for 40.8% of the loans originated in the second quarter of 2011, up from 37.2% a year earlier, according to ExperianAutomotive, a unit of credit bureau and research firm Experian Plc. ‘We are continuing to see growth in subprime, both new and used, and loans are becoming looser,’ said Melinda Zabritski, director of automotive credit for Experian. Approved credit scores are dropping and loan terms are growing longer.
After the lenders tightened lending guidelines, delinquency rates dropped. As they loosen again, the chance for a higher delinquency rate becomes a real possibility again. Hopefully, lenders learned a lesson from the recession and will not allow these subprime auto loans make up more than half of their loan portfolios. No one could take another recession this soon.