Understanding Automotive Loan Charge-off Patterns Can Help Mitigate Lender Risk
Loan delinquency rates are one of the most important statistics to track in the
automotive finance industry. If consumers are not repaying loans on time, it puts
billions of dollars at risk. When high dollar volumes are at risk, it is a negative
for everyone in the lending world, including consumers, automotive retailers and lenders
themselves. When lending markets crashed in the fourth quarter of 2008, it caused
chaos for the industry. While conditions have improved considerably the past few years,
lenders still need to remain vigilant about where delinquencies are most likely to
occur. It’s an unavoidable fact that some loans will have to be charged off.
Understanding where and how these charge offs occur provides important learning for
the industry. Experian Automotive has found several clear patterns that can help lenders
better understand the root cause of loan delinquencies. These can be found in vehicle
buyers themselves through credit scores and length of credit history; through the
vehicles themselves and their own history; and through the loans themselves by understanding
the impact of high loan-to-value ratios. All of these data points provide insight
into patterns of where charge offs are most likely to occur and can significantly
impact the strategies lenders adopt.
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