RICHMOND, Va. -

With more potential buyers falling into the subprime credit tier, CarMax is looking to leverage its captive finance company more often to fund deals its third-party lenders might not be buying at volume levels company leaders are seeking.

During the final quarter of its current fiscal year, CarMax Auto Finance plans to launch a test of originating loans for customers who typically would be financed by the company's subprime providers.

"Given the relevance of subprime to our business and the overall market, we believe it is prudent to gain further insight into underwriting and servicing accounts within this credit profile," company officials said.

"Over the next 12 months, we plan to originate approximately $70 million of loans in this test," they continued. "The test will be funded separately from our current portfolio and not included in our current public securitization program."

During the third quarter of its 2014 fiscal year that concluded Nov. 30, the company reported that CarMax Auto Finance's income increased 16 percent to $83.9 million as a result of a 24-percent increase in average managed receivables, partly offset by a lower total interest margin.

The finance company's average managed receivables grew to $6.81 billion, reflecting a rise in loan originations in recent years.

"The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 6.8 percent of average managed receivables in the current quarter from 7.4 percent in last year's third quarter," officials said.

Despite what CarMax Auto Finance's performance was in Q3, it was the subprime initiative for the fourth quarter that prompted investment analysts to pepper company leadership with questions about it through its quarterly conference call just before the holidays.

CarMax chief executive officer Thomas Folliard and chief financial officer and executive vice president Thomas Reedy repeatedly told Wall Street observers that the company plans to jump deeper into the subprime space with prudence.

"As I mentioned, we've worked on this for over a year, so it's not a reactionary move at all," Reedy said according to a transcript of CarMax's call available from SeekingAlpha.com.

"Customers with challenged credit have become a meaningful part of our overall business, and they're a meaningful part of the used car market, so we feel like we owe it to ourselves to get smarter about this space," Reedy continued.

"Whether we're in it or not with our partners, we need to understand it a little better. We considered a number of options, including a joint venture or something like that, but we determined this is the best way to learn. So I hope that's probably the best way to address it," he went on to say.

In fact, Folliard acknowledged that subprime loans previously constituted about 3 to 4 percent of CarMax's business. Now, it's more than 15 percent.

"We have to look at what's in the overall best interest of the company, so this is just a step in that direction to really learn more about the segment," Folliard said.

At least one investment analyst contends CarMax is making a shrewd move.

"This is an opportunistic decision to improve finance profitability (and) I continue to believe that the automotive lending market remains healthy and lacks the overexuberance characteristic of the market pre-recession," Stifel Nicolaus analyst Jamie Albertine told Reuters in this report.