Capital One Takes On More Subprime Auto Loans

Despite lower earnings, the company's subprime auto loans grew in the last quarter

Shaun Plum
MoneyTips Contributor

Borrowing Automotive Loan

Capital One Takes On More Subprime Auto Loans
August 4, 2016

During the second quarter of 2016, the earnings of Capital One Financial failed to meet expectations, leading to its stock declining. However, Capital One did see increases in one area. They increased the number of their subprime auto loans. These loans, made to consumers who have less than desirable credit scores, have become more popular following the 2008 financial crisis, but they come with risks. Because most borrowers have a history of poor credit use, they are more likely to default on the loans.

The move to increase the number of subprime auto loans made during the second quarter drew the attention of many financial experts, including those at Edward Jones. These financial analysts have been carefully monitoring Capital One's earnings, noting in particular, the default rates of borrowers.

They are not the only ones. In February 2015, the New York District Attorney's Office and the Department of Justice both subpoenaed the lender for information on its subprime loans as part of an investigation looking at the subprime lending practices of large lenders. The investigation did not result in charges or fines being levied against Capital One.

Almost half of all auto loans made by the lender were classified as subprime as of March 31. This means they were made to those with a 660 or lower credit score. Nationally, only 23 percent of auto loans fall into the subprime category.

If you are interested in an auto loan, visit our curated list of top lenders.

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