US: auto loan titan says subprime long terms are the new normal image

Thomas Dundon, the man behind the creation of one of the largest US subprime lenders, claims there is no danger in allowing customers to embark on longer car loans.

He was crucial in helping during the 1990s with the creation of the lender that today has become Santander Consumer USA Holdings Inc., when subprime borrowers were traditionally offered four-year auto financial assistance. But today the standard is of at least six years, which he says is normal in part because salaries have not gone up just as fast as vehicle prices. Taking the road of longer terms with smaller payments is viable because the alternative would be to have consumers and lenders embark on a “a shorter term with an older, cheaper, less-reliable piece of transportation,” he commented during a recent interview. He was bought out of his minority stake by the Banco Santander SA and replaced as the lender’s top man this month.

There is a lingering issue about allowing consumers and lenders into loans that stretch to new limits as the volume of subprime auto debt is in turnaround mode following the collapse in the aftermath of the 2008 financial crisis. The Office of the Comptroller of the Currency said the trend across the automotive loan market needs to be carefully monitored in a June report. Longer terms are seen as increasing the risks of lenders incurring losses on repossessions and of consumers ditching vehicles that would need major repairs. According to Experian Automotive data, the average loan car term for a new vehicle soared to a record 67 months during the first quarter of the year, with the subprime figure at 72 months.

Via Bloomberg