LendingTree Study Indicates Subprime ‘Auto Bubble’ Unlikely
A new study from LendingTree contradicts media claims of a subprime bubble. It shows that finance sources are not taking part in risky lending practices despite growing subprime originations.
CHARLOTTE, N.C. — According to a new study from LendingTree, lenders are not necessarily taking part in the risky lending practices that could lead to a bubble as some reports claim, although they are originating a larger number of subprime loans.
The study analyzed the credit scores of subprime auto loan borrowers for loans originated in 2014. LendingTree found that over the one year period ending December 31, 2014, the monthly average of borrower credit scores for loans closed by LendingTree's network of lenders increased by 10 points. The monthly median credit score of those closed by network lenders rose by 12 points.
If industry lenders were taking on substantially higher risk, the data would likely reveal lower credit standards needed for approval, with approved aggregate credit scores declining over time. Instead, LendingTree data shows an upward trend, suggesting lenders are potentially being more selective within the subprime segment.
"Our data does not substantiate the likelihood of an upcoming crisis," stated Rick Finch, general manager of LendingTree Autos. "While the current concern over subprime auto loans that end up defaulting is reminiscent of the mortgage meltdown stemming from mortgage backed securities, the defaults are being monitored and controlled by the lending market. Although auto backed securities increasingly contain subprime loans, loan defaults are not rising at a rate that signal imminent danger."
Wells Fargo, one of the largest subprime auto lenders, recently announced it would now place a dollar volume cap on its subprime auto loans, with these originations limited to 10% of the bank's overall auto loan originations, which totaled $29.9 billion last year. This could be a signal of a larger cooling trend within the subprime auto loans segment. Since the financial mortgage crisis, Wells Fargo has developed a positive reputation for risk management, and its current actions could be followed by other major auto loan lenders. This would indicate lenders are aware of the market risk and are taking preventative measures against a bubble.
In another recent release by Equifax, one of the three major consumer credit bureaus, Equifax also refuted the impending subprime auto bubble instead citing borrowers who originated a subprime auto loan had a median consumer credit score increase of 52 points over a three-year time period. Auto lenders have better tools today with more data and technology to assist them in making safer decisions.
"The mentality of someone paying for a car is different than someone paying a mortgage. The inability to afford a mortgage and losing a house results in the consumer looking for more affordable housing in the rental market, or seeking friends or family for help,” Finch said. “Missing car payments affects one's ability to get to work and continue earning a paycheck. People are more likely to make auto payments a priority based on need, and most seek to remedy car financing issues quickly."
Originally posted on F&I and Showroom
More Dealer Ops

Ladies and Gentlemen, This Is a Dealership: Why the Fundamentals Still Decide Who Wins
A teaching moment by a legendary football coach happens to apply perfectly in the auto retail space. Learn what it is and how to use it to your store’s advantage.
Read More →
Timing the Market Can Hurt Long-Term Program Performance
For dealer-owned reinsurance entities, avoiding volatility entirely can mean falling behind inflation and missing market rebounds that drive long term surplus growth. Missing just a handful of strong market days can materially impact cumulative returns—an important reminder for long horizon trust and investment strategies.
Read More →
Dealer Ads and the FTC
The agency has made it clear in recent enforcement actions and warnings, in auto retail and other industries, that advertised prices must include all nonoptional costs to the consumer.
Read More →
Used Autos Supply Dwindles
The March shopping surge, despite high prices, cut into inventory by the most since the thick of the pandemic, Cox Automotive analysts calculated.
Read More →
Managing Risk Effectively Through Changing Times
The variables influencing risk pricing have changed significantly over the past five years. Being proactive and responsive to emerging trends is not optional but essential.
Read More →
Survey Reveals What Won't Fix What's Breaking Car Sales
AutoPayPlus says extra-long auto loans are trapping consumers and threatening the dealer trade-in cycle, and that the industry is leveraging the wrong tools to combat high MSRPs.
Read More →
IA American Appoints Two Execs
Senior vice presidents of the company's agent and dealer channels chosen to support general agents and help auto dealers with sales and performance.
Read More →
Cox Automotive Acquires Inspection Firm
Full ownership of Alliance Inspection Management, or AiM, meant to unlock growth for Manheim inspection capabilities
Read More →
Assurant Expands Partnership With Holman
Extended collaboration delivers training, products and performance development to 30 newly acquired Holman dealerships
Read More →
Franchises, Throughput Down in First Half
A handful of states see franchise growth through June, while EV sales per store boost overall business in U.S.
Read More →