There has been a significant increase in subprime auto lending during the past year as new lenders joined established ones in extending loans to subprime borrowers looking to purchase vehicles. As competition heats up, and after a period of tight underwriting from 2009 through 2011, Standard & Poor’s Ratings Services saw borrower demographics and underwriting standards begin to return to more typical levels in 2012, a trend we expect to continue throughout 2013.

We expected this shift in underwriting after the economy emerged from the recession, when it was difficult for subprime buyers to finance an auto purchase. This recent return to a more typical subprime borrower base is therefore marked by lower credit scores (FICOs) and higher loan-to-value (LTV) ratios than during the tight underwriting of 2009 through 2011.

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