Subprime Datapoint of the Day, Auto Loan Edition

And you thought subprime mortgages had high default rates. William Adams, Liran

Einav, and Jonathan Levin examine

subprime auto loans:

The average purchaser finances around 90 percent of the price of the automobile,

with the average loan size being around $11,000. Repayment is highly uncertain:

more than half of the loans default, and the majority of these default within

the first year of repayment. Interest rates reflect the high probability of

default: a typical loan in the authors’ dataset has an annual interest rate

on the order of 25-30 percent.

This has nothing whatsoever to do with the housing market, of course. But these

are borrowers who are 15% more likely to default for every $1,000 that’s tacked

on to the size of the loan. Which does make you think twice about the companies

which were lending them hundreds of thousands of dollars to buy houses.

(Via Thoma)

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