Auto loan delinquencies in the fourth quarter hit their highest level since the financial crisis, a report out Thursday revealed.
About $23.27 billion in loans were 30 days or more late as of Dec. 31 — a whopping 14 percent increase from the year earlier and the most since the $23.46 billion in the third quarter of 2008, according to the New York Federal Reserve.
Delinquencies have moved up as the credit quality of the loans has deteriorated and the length of the auto loans has increased — sometimes to 84 months.
“Greater access to auto loans for non-prime consumers suggests that lenders have made deliberate decisions to accept more risk from non-prime loans in their portfolio,” Jason Laky, TransUnion’s automotive and consumer lending business leader, said in the agency’s 2017 credit-market forecast.
“An increase in delinquency is the natural consequence of that strategy,” he said.
Seriously delinquent loans — those 90 days or more past due — jumped an eye-popping 19 percent in the quarter from the previous year, the New York Fed said.
Delinquencies are the canary in the coal mine when it comes to losses for carmakers.
But despite the uptick in delinquencies in loans, the New York Fed is mostly concerned with those made to subprime borrowers with credit scores under 620.
It calculated that subprime borrowers accounted for about $280 billion in auto loans in the fourth quarter — not notably different from the $345 billion in auto loans attributed to the most creditworthy borrowers (those who had credit scores above 760).
Almost all borrowers with credit scores above the subprime cutoff of 620 are “performing very well,” it said.
The average monthly car payment in the fourth quarter rose above $500 for the first time, according to the credit-rating agency Experian.
Moreover, of those subprime auto loans, the New York Fed said a full 75 percent originated with auto finance companies — a class of lender that, unlike banks and credit unions, has been loosening its credit standards since 2010.
The result of these divergent lending practices had about 1 in 20 auto loans issued by finance companies running at least 90 days in arrears during the fourth quarter, compared with 1 in 100 for auto loans issued by banks and credit unions.
Despite the worsening case for subprime borrowers, the NY Fed nonetheless noted that the median credit score on all auto loans rose to 763 in the fourth quarter, from 753 in the year-earlier period.
The NY Fed also calculated that the number of total car loans increased to a record 106 million in the fourth quarter — a pickup of 6 million during the year.
And since the average auto debt per borrower inched up 2.1 percent to $18,391, according to data published Thursday by TransUnion, the credit-reporting agency predicted delinquency rates would continue their climb.
Our editors found this article on this site using Google and regenerated it for our readers.
