CINCINNATI—Auto lenders are reaching down into deeper credit scores for leases, reports one analyst.
As leasing continues its strong rise, expected to claim 30% of all auto loans in 2015, Swapalease.com is seeing more leasing activity among subprime borrowers.
“Swapalease.com is seeing more customers with credit scores in the 600s going through the lease application process,” said Swapalease.com Executive Vice President, Scot Hall.
Also, recent comments from Kelley Blue Book and Autotrader analysts indicate competition might be encouraging lenders to explore this profile further, Hall said.
“Swapalease.com believes this is a segment that not only offers lower-than-expected risk, but one that could benefit from more leasing options,” said Hall, who made the following points:
- The strength of the certified pre-owned market can absorb more lease activity.
- Subprime leasing might help move more smaller cars, which aren’t selling as much because of low gas prices.
- Shorter-term payment structures of 36 months means subprime customers would have a smaller window for payment obligations before default risk.
- Leases having shorter terms relative to other financing options will permit subprime applicants to rebuild their credit more quickly and without the potential problems surrounding refinancing.
“Experian Automotive mentioned in its latest report that leasing credit has loosened, as the average new vehicle lessee had a credit score of 718 in Q1 2015, down from 721 the previous year,” noted Hall.