A Fiat logo is seen on a car's back at a scrapyard. Photo: Reuters/Michaela Rehle

Subprime auto loans have been around forever in the US, one reason for complacency in the face of rising rate of defaults. But the recent boom in the business is raising alarm bells, reports Bloomberg.

In 2009, US$2.5 billion in new subprime auto bonds were sold. Last year that number had ballooned to US$26 billion in new bonds sold.

A partnership between Fiat Chrysler and Banco Santander is one of the most striking examples of lax underwriting. The bank vetted incomes on less than 10% of recent loans, according to Moody’s Investors Service.

Auto finance “is not going to bring down the financial system like the mortgage crisis almost did, but it does signal more stress with the consumer,” Stephen Caprio at UBS Group AG was quoted as saying.

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