In a sign of rising competition for less creditworthy borrowers, used car dealer CarMax said it would begin offering subprime auto loans in the fourth quarter of its fiscal 2014.
Until now, CarMax has outsourced financing for its subprime customers, but it said today it would launch a test program that will make a projected $70 million of loans over the next 12 months. These subprime loans would be funded separately from its current loan portfolio and would not be included in the company’s current public securitization program.
“Given the relevance of subprime to our business and the overall market, we believe it is prudent to gain further insight into underwriting and servicing accounts within this credit profile,” CarMax said in a press release announcing its financial results for the three months ended Nov. 30.
The company’s net earnings grew 12$ to $106.5 million ; income at its CarMax Auto Finance unit increased 16% to $83.9 million.