Affordability headwinds pose unique risks for near prime underwriting

Auto lenders might need alternative data sources to underwrite near prime consumers, many of whom expect prime-worthy rates but could contribute to higher loan losses as inflationary pressures mount. Many near prime consumers — with FICO scores of 601 to 660 — had been prime consumers who defaulted because of life events or other challenges, Betty Jotanovic , president of auto relationships at Santander Consumer USA , told Auto Finance News at the recent Non-Prime Auto Financing Conference. That drop can be difficult as near prime customers shop for cars “expecting a prime rate, and [have] become more payment sensitive,” she said. The share of near prime borrowing rose to 15.3% of the auto market in the first quarter, up from 14.7% in Q1 2025, according to May 28 Experian data. Underwriting for near prime borrowers can be difficult because their performance could vary based on macroeconomic conditions, compared to an always-insulated prime credit tier and an always-distressed subprime credit tier, Westlake Financial Services Vice President Todd Laruffa told AFN at the conference. “The subprime and prime customer is easier to predict performance; [the] near prime customer has much more volatility and can go both ways pretty quickly,” he said. The “near prime customer has farther to fall than the subprime customer.” Near prime borrowers’ credit performance could drop as the economy weakens and delinquencies rise , Andrew Coffey , senior vice president of enterprise sales at Concord , told AFN at the event. Once “your near prime customer base starts to lose the credit card line because they’re starting to max out … that’s going to be the straw that breaks the camel’s back,” he said. To mitigate risk on near prime auto loans, Coffey said, lenders need to: Consider payment plans that keep customers in their vehicles; Assess whether those vehicles are worth repossessing faster than those that subprime consumers default on; and Invest in accurate alternative data sources. “They are going to have to take some pages out of the subprime playbook,” Coffey said. Looking ahead Near prime lending performance could get significantly worse in the next 12 months to 18 months, Coffey said. However, lenders that offer financing to less desirable near prime borrowers in the short term might benefit when economic conditions improve, he said. “That near prime customer that is now [effectively] a subprime customer … you’re going to want to covet them in a year or two years as well, so you don’t want to burn that bridge.” — Andrew Coffey, Concord Lenders should track payment history, education and other background information to determine whether a borrower will be able to keep payments current and perform better in the future, iLending Director of Lender Relations Cedric Moore told AFN at the event. “A lot of these near prime borrowers that might be falling off that cliff ... are not necessarily falling off,” he said. “They are dealing with the economic pressures everyone else is dealing with across the spectrum ... it’s just a matter of how you look at that borrower, considering said market and all the other variables.” Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 5-7 at Caesars Las Vegas. To learn more about the 2026 event and register for early-bird pricing through Aug. 21, visit <a id="menur11ag" class="fui-Link ___1q1shib f2hkw1w f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1s184ao f1mk8lai fnbmjn9 f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh fhgqx19 f1olyrje f1p93eir f1nev41a f1h8hb77 f1lqvz6u f10aw75t fsle3fq f17ae5zn" title="https://hubs.la/q03tvdb00" href="https://hubs.la/Q03tVDB00" target="_blank" rel="noreferrer noopener" aria-label="Link www.AutoFinance.live/AFS"> www.AutoFinance.live/AFS .

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Affordability headwinds pose unique risks for near prime underwriting

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