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- Subprime Auto-Loan Delinquencies Hit Record, Prime Loans Are Pristine, after Easy Money Ends: The High-Risk High-Profit Business of Subprime Auto Lending
Subprime Auto-Loan Delinquencies Hit Record, Prime Loans Are Pristine, after Easy Money Ends: The High-Risk High-Profit Business of Subprime Auto Lending
by Wolf Richter Wolf Street
What makes it work: Securitizing subprime auto loans and selling the Asset-Backed Securities to yield-hungry investors.
Subprime auto loans are making breathless headlines again. Subprime-rated borrowers tend to get in trouble with their debts, which is precisely why they’re rated subprime in the first place.
Only about 14% of total outstanding auto-loan balances are subprime – and most of them have been securitized into Asset Backed Securities (ABS) and sold to investors who’d bought them to get the higher yields. Typically, subprime-rated borrowers purchase older, such as 10-year-old or older, used vehicles with those loans because that’s the only thing they qualify for.