NEW YORK–A new report suggests more and more car buyers are having difficulty keeping up with auto loan payments—but raises the question over why repossessions aren’t rising.
Despite the increase, car loan default rates remain below pre-pandemic levels. Satyan Merchant, the senior vice president of TransUnion told Automotive News the increase can be attributed to changes in origination — or where borrowers stand in credit and spending.
Borrowers who took out auto loans in the second and third quarters of 2020 are keeping up with them better than pre-pandemic borrowers, according to TransUnion. But auto loans in the second and third quarters of 2021 are starting to show similar delinquency rates as debt from before COVID-19, Automotive News reported.
“There is slight worsening performance of recent vintages at a risk tier level when we isolate near-prime and above cohorts, and we suspect pandemic score migration may be playing a role,” Merchant said in a statement quoted by Automotive News.
Merchant pointed to a subprime customer whose credit improved in 2020 and was near prime for a 2021 car loan, but who now behaves more like a subprime consumer.
According to Merchant, inflation and interest rates can increase delinquencies, but unemployment is the most likely metric for the industry to watch.
The Big Question
Then question has now become, if delinquency rates are up, why aren’t repossessions? asked Automotive News. Equifax found 2.14% of auto loans in the first six months of this year were more than 120 days behind on payments, a number that isn’t great but that is much lower than the 2.9% rate from in 2019, Automotive News stated.
In short, consumers aren’t letting the delinquencies lead to defaults, Automotive News stated.
CUToday
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