Auto loan delinquencies rise as loan-accommodation programs end

With inflation cutting into Americans’ budgets, a growing percentage of people with auto loans are struggling to make their monthly payments.

TransUnion, which tracks more than 81 million auto loans in the United States, said on Tuesday the percentage of loans past due for at least 60 days reached 1.65% in the third quarter, the highest rate of late payments. 60 days for more than a decade.

“Consumers always want to stay informed as best they can. It’s just that this inflationary environment is making it difficult,” Satyan Merchant, senior vice president of TransUnion, told CNBC. “It leaves less money in their pockets to pay off the car loan because they have to pay more for eggs, milk and other things.”

The greatest impact is felt among subprime borrowers who have lower credit scores and often have lower incomes.

In September, the average transaction price for a new vehicle was $47,138, up nearly $2,600 from the year-ago period, according to automotive research firm Edmunds. The average price paid for a used vehicle was $30,566, a jump of nearly $2,500 from September 2021.

The rise in delinquencies also follows the end of the housing loan programs put in place during the pandemic. These programs were designed to help consumers who may have lost their jobs avoid repossessing a car because they couldn’t make the monthly payment.

“There’s been this effect where delinquency that may have happened over the last few years is really pushed back or delayed because that consumer didn’t have to make payments or their status was on housing. So now some of them are hitting,” Marchand said.

TransUnion said about 200,000 auto loans that previously enjoyed pandemic-era accommodation are now listed as 60 days past due. About 100,000 accounts past due for more than 60 days remain in hosting programs, the credit company said.

Despite rising delinquencies, Merchant believes the auto loan market remains healthy. The average new-vehicle loan interest rate jumped to 5.2% in the third quarter, while the average used-vehicle loan rate hit 9.7%, according to TransUnion. Both are up more than a full percentage point from the prior year period.

These higher interest rates are causing many consumers to extend the terms of their loans to at least seven years, Merchant said. Yet, crime rates have been kept somewhat in check by low unemployment.

“If we get into a position where employment is starting to be a challenge in the United States and unemployment is on the rise, that’s when the industry will really start to worry about a consumer’s ability to repay their car loan,” said he declared.

– CNBC’s Meghan Reeder contributed to this report.

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