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KBRA Releases Research – Auto Loan ABS Trends: Shifting Gears Ahead of the Turn

NEW YORK--(BUSINESS WIRE)--KBRA releases research assessing changes in the auto loan asset-backed security (ABS) sector.

The auto loan asset-backed security (ABS) sector has shown both stability and volatility over the past decade. This report evaluates how auto loan ABS attributes such as loan-to-value (LTV) ratios, initial balances, terms, annual percentage rates (APR), and monthly payments have evolved over this time, with a focus on performance since the pandemic’s onset. KBRA assesses these attributes in relation to four FICO score-based credit categories: prime, near prime, mid subprime, and deep subprime. We also examine trends in used vehicle values and recovery rates.

Key Takeaways

  • LTV ratios have generally trended upward toward pre-pandemic levels this year after declining for some time due to increasing vehicle values beginning in Q2 2020, as well as higher borrower down payment amounts.
  • Unsurprisingly, weighted average (WA) initial loan balances have also trended upward. This has occurred across a wide range of FICO scores, with the exception of the deep subprime category, where loan balances have actually dipped by approximately 1% as lenders tighten origination standards.
  • For those same deep subprime borrowers, loan terms have also decreased to eight-year lows. Meanwhile, loan terms for obligors with FICO scores above 550 have trended upward modestly and are above pre-pandemic levels.
  • Despite rising interest rates, APRs charged to borrowers have remained steady through October 2022, as competitive pressures in the industry made it challenging for lenders to pass higher issuance costs to consumers. However, KBRA expects this trend to change as rates continue rising and credit performance softens.
  • With higher loan balances and modest increases in original terms, WA monthly payments have steadily increased.
  • Recovery rates reached record highs in Q1 2022, benefiting from strong used vehicle prices from Q2 2020 through Q1 2022. This trend began reversing in Q2 2022 amid declining vehicle prices, which has pushed recovery rates down as well. However, while used vehicle prices are expected to continue declining, they will likely remain elevated compared to recent years.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Contacts

Maxim Berger, Director, Consumer ABS
+1 (646) 731-1260
maxim.berger@kbra.com

Brian Ford, CFA, Head of Structured Finance Research
+1 646-731-2329
brian.ford@kbra.com

Eric Neglia, Senior Managing Director, Head of Consumer and Commercial ABS
+1 (646) 731-2456
eric.neglia@kbra.com

Rosemary Kelley, Senior Managing Director, Head of Global ABS
+1 (646) 731-2337
rosemary.kelley@kbra.com

Eric Thompson, Senior Managing Director, Head of Global Structured Finance Ratings
+1 (646) 731-2355
eric.thompson@kbra.com

Business Development Contact

Ted Burbage, Managing Director
+1 (646) 731-3325
ted.burbage@kbra.com

KBRA

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Maxim Berger, Director, Consumer ABS
+1 (646) 731-1260
maxim.berger@kbra.com

Brian Ford, CFA, Head of Structured Finance Research
+1 646-731-2329
brian.ford@kbra.com

Eric Neglia, Senior Managing Director, Head of Consumer and Commercial ABS
+1 (646) 731-2456
eric.neglia@kbra.com

Rosemary Kelley, Senior Managing Director, Head of Global ABS
+1 (646) 731-2337
rosemary.kelley@kbra.com

Eric Thompson, Senior Managing Director, Head of Global Structured Finance Ratings
+1 (646) 731-2355
eric.thompson@kbra.com

Business Development Contact

Ted Burbage, Managing Director
+1 (646) 731-3325
ted.burbage@kbra.com

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