Auto loan delinquencies increase as loan adjustment program ends

As inflation squeezes American budgets, a growing percentage of people take out auto loans and struggle to make their monthly payments.

TransUnion, which tracks more than 81 million auto loans in the US, said Tuesday that the percentage of loans that are 60 days or more past due reached 1.65% in the third quarter.

“Consumers still want to stay as up-to-date as possible. rice field. “They have to pay more for eggs and milk and other things, so they have fewer dollars left in their pockets to pay off their car loans.”

Subprime borrowers, who often have lower credit scores and lower incomes, will be hit hardest.

According to automotive research firm Edmunds, the average transaction price for a new car in September was $47,138, up about $2,600 from the same period last year. The average used car price is $30,566, up about $2,500 from September 2021.

The increase in delinquencies also follows the end of loan adjustment programs set during the pandemic. These programs are designed to help consumers who may have lost their jobs avoid having their cars remanded for not being able to make their monthly payments.

“The effect was that delinquencies that may have occurred over the past few years were actually pushed out or delayed because consumers didn’t have to pay or were staying in accommodations. , some of them are being hit right now,” Merchant said.

TransUnion said about 200,000 auto loans that previously used pandemic-era accommodations are now listed as 60 days in arrears. About 100,000 accounts that are 60 days or more in arrears remain in the lodging program, according to the credit company.

Despite rising delinquency rates, merchants believe the auto loan market remains healthy. According to TransUnion, the average interest rate on new car loans rose to 5.2% in the third quarter, while the average interest rate on used car loans reached 9.7%. Both increased by more than 1 point compared to the same period last year.

Merchant said these rising interest rates are putting pressure on many consumers to extend the terms of their loans to at least seven years. Still, low unemployment has moderated delinquency rates somewhat.

“If we are in that position Jobs will start to become a challenge in the United States, unemployment will rise, and the industry will start to really worry about consumers’ ability to pay their auto loans,” he said.

— CNBC’s Meghan Reeder contributed to this report.

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