caseyresearch.com / Justin Spittler / August 30, 2016
Subprime loans are going bad again.
A “subprime” loan is a loan made to someone with bad credit. If the term sounds familiar, it’s because lenders issued millions of subprime loans during the early to mid-2000s.
Banks made these risky loans thinking housing prices would “never fall.” When they did, subprime borrowers stopped paying their mortgages. The U.S. housing market collapsed, triggering the worst economic downturn since the Great Depression.
These days, lenders aren’t making as many reckless mortgages. But subprime lending is alive and well in the auto market…
Since the financial crisis, subprime auto lending has exploded. According to Experian, subprime auto loans now make up more than 20% of all U.S. auto loans.
Millions of Americans with bad credit now own cars they should have never bought in the first place. Risky subprime loans have also made the auto loan market incredibly fragile.
Right now, people are falling behind on their car loans at an alarming rate. As you’ll see, this isn’t just a big problem for lenders and car companies… It could also spell trouble for the entire U.S. economy.
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