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What We Learn About Used Cars From Subprime Loans

powertrain logoReading between the lines of subprime lending to infer important data about used cars.

Moody analysts Jeff Hibbs, William Black, and Mack Caldwell, published a report in late 2013 that, "Auto lenders will continue their return to higher levels of risk-taking, a trend that emerged in 2013 and will gain momentum in the coming year”.  In our opinion, this is now occuring for three reasons:


  • Increased competition between lenders
  • Demand for red-hot subprime bundled securities
  • Relaxed vehicle parameters for subprime lending

Our focus will be on the third as this is our area of expertise (not the quantum complexity of modern day investing). Prominent subprime lenders such as West Lake Financial, Credit Acceptance, and Capital One, have noticeably relaxed some of the vehicle criteria that determine whether a subprime loan is issued. When necessary, we use subprime lenders as a tool to get financing to those who otherwise could not receive it so we see firsthand which vehicle parameters they seem to be relaxing. This data is very telling as to the apparent dependability and value of some used cars.


As a general rule, subprime lenders are relaxing standards on all late model vehicles but it is most evident in late model imports and trucks. What's more, is lenders are advancing more money on higher mileage trucks and late model imports. Another specific parameter that holds less weight nowadays is mileage. Lenders are more likely to take on higher mileage collateral as they see it as less risky.


So what can we learn from this phenomenon? It shows us that with proper maintenance,  high-mileage, late model imports and trucks, are far more dependable than they used to be. Why else would insurance companies offer lifetime powertrain warranties (dependent upon maintenance)? Yes, they can make money and that is the main reason, but within that reason there is truth that guided them into these type warranties. Certain vehicles last longer and are more dependable than other and older vehicles.


Author: Scott Parrott, owner of Legacy Automotive | Online used car dealership | Tuscaloosa, AL


Views: 46

Tags: cars, loans, subprime, used


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