The Risky Business of Subprime Auto Lending: Delinquencies Soar as Easy Money Ends

Subprime auto loan delinquencies have reached a record high, with the delinquency rate for subprime-backed Asset-Backed Securities (ABS) hitting 6.1% in September. In contrast, prime-rated auto loans have remained in pristine condition, with a delinquency rate of just 0.27%. Subprime auto lending is a high-risk, high-profit business that primarily targets used vehicles, while new vehicles are largely reserved for prime-rated customers. The government's pandemic relief measures temporarily lowered subprime delinquency rates, leading to aggressive lending practices and the subsequent collapse of some specialized subprime dealers and lenders. Despite the risks, subprime auto lending remains attractive to investors due to the high interest rates and potential for large profit margins.