ACTV - Subprime Auto Loans Are Getting Messy

2024-05-21 08:35:00 ET

Summary

• In April, 5.23% of subprime auto loans were 60 days or more delinquent, the worst April on record, and a hair above the prior record of April 2020.
• Subprime delinquencies were already rising from 2015 through 2019, as subprime lending was getting very aggressive.
• Investors earn high yields on the riskier lower-rated portions of the ABS that take the first losses, and those yields compensate investors for taking those credit risks, though it may not always work out.

Subprime doesn’t mean “low income,” it means “bad credit”; it means a history of taking on too much debt and not paying those debts and other obligations as agreed, which caused their FICO score to drop into the subprime category....

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