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CFPB data point report on sub-prime auto lending

The CFPB has released its latest Data Point Report, which takes an in-depth look at how the interest rates and default risk vary across different types of subprime auto lenders.

The report finds that some types of subprime lenders charge their borrowers significantly higher interest rates than others, and that differences in default risk are unlikely to fully explain these differences. The Data Point first finds that there are notable differences across lender types in the borrowers they serve and the types of vehicles they finance. For example, banks and credit unions that offer subprime auto loans tend to lend to borrowers with higher credit scores than finance companies and buy-here-pay-here dealerships. In light of these differences, it is perhaps not surprising that different lender types charge very different interest rates on average. For example, for subprime auto loans in the CFPB's sample, average interest rates at banks are approximately 10 percent, compared to 15 percent to 20 percent at finance companies and buy-here-pay-here dealerships.

As expected, the report found higher default rates at lender types that charge higher interest rates. For example, it found that the likelihood of a subprime auto loan becoming at least 60 days delinquent within three years is approximately 15 percent for bank borrowers and between 25 percent and 40 percent for finance company and buy-here-pay-here borrowers.

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