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While Subprime Auto Loans Default, Their Bonds Somehow Keep Performing America's subprime auto market has become a fascinating example of how financial engineering can remain remarkably healthy even while the consumer sitting underneath it is getting progressively sicker, according to Bloomberg. Bloomberg recently dug through nearly 3 million auto loans originated by Exeter Finance, Santander, Carvana and GM Financial and subsequently stuffed into publicly traded asset backed securities between 2021 and 2023. What emerges from the data is a system built with enough interest, fees and collateral protection that borrowers can fall behind, restructure their loans and eventually lose their cars without necessarily interrupting the stream of cash moving toward lenders and bondholders. The math helps explain why. Subprime borrowers in these pools paid interest rates averaging roughly 18%, while the securities created from those loans were issued at rates reaching about 6.7%. That enormous gap provi...