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Auto loan delinquency rates expected to return to normal Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering you interactive tools and financial calculators as well as publishing original and objective content, by enabling users to conduct research and analyze data for free to help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website come from companies who pay us. This compensation can affect the way and where products appear on the site, such as such things as the order in which they may appear in the listing categories in the event that they are not permitted by law for our mortgage or home equity products, as well as other home lending products. But this compensation does affect the information we publish, or the reviews you see on this site. We do not cover the universe of companies or financial deals that could be available to you. SHARE: Massimo colombo/Getty Images

3 min read Published March 02, 2023

Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in understanding the ins and outs of securely borrowing money to buy cars. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with concise, well-studied information that simplifies complex subjects into digestible pieces. The Bankrate promise

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There are money-related questions. Bankrate has answers. Our experts have helped you understand your finances for over four years. We strive to continuously provide consumers with the expert advice and tools required to be successful throughout their financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our information is trustworthy and reliable. Our award-winning editors, reporters and editors produce honest and reliable content that will help you make the best financial decisions. Our content produced by our editorial team is factual, objective and is not influenced from our advertising. We’re honest about the ways we’re able to bring quality information, competitive rates and useful tools to you by explaining how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or when you click on specific links on our website. This compensation could impact how, where and when products are displayed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity, and other home lending products. Other elements, like our own website rules and whether a product is available within your region or within your personal credit score can also impact how and where products appear on this site. We strive to provide a wide range offers, Bankrate does not include the details of every credit or financial item or product. While the prices of cars have been on the rise, auto loan delinquency rates were surprisingly low for the first two years of the pandemic. However, that is no anymore. As we work to tackle increasing inflation, more and more borrowers are falling behind on their auto loans and it is possible for delinquency rates to return to pre-pandemic levels at the close of 2022. The delinquency rate for 2022 is expected to increase. The robust credit trends during the pandemic are now returning to normal levels as illustrated by the improvement in auto loan results this month. According to Cox Automotive’s weekly insight from early October, loans more than 60 days delinquent are increasing — up 30.8 percent from the year prior. But normal does not necessarily mean good. These numbers reveal that rates of delinquency are inching upwards each month- especially for subprime drivers. The subprime borrowers are the ones most directly affected by the rise in inflation and can be vulnerable to lenders. It is crucial to stay up to date on your loan payment to ensure that you do not default in the loan and losing your vehicle. The good thing is that these higher levels of late payments have not yet led to an increased number of drivers defaulting on their loans at pre-pandemic levels. But the availability of cars and credit access will likely shift the landscape in 2022 as the year comes to the end of the year. Be aware of the bigger image While it’s true that delinquency rates are on the rise, it is important to think about the causes that have led to this increase. Due primarily to an issue of demand and supply, which is still the major driver of the rising cost of living in the automotive industry. With less inventory and increased expectations, the more costly vehicles have higher rates, 6.07 and 10.26 percent in the case of used and new vehicles, respectively, according to . But Satyan Merchant is executive vice president, senior director of business and automotive business manager at TransUnion, warns to look at the big picture when it comes to auto-related delinquencies in the wake of the “Critical Eye on Auto Performance release in mid-October. Merchant says that “while point-in-time delinquency rates are higher comparison to previous time frames, we have also observed fairly stable vintage performance.” So, this growth in delinquency can be considered normal when seen on an economic scale. The report also found that the general performance was similar to the rates of 2019, an encouraging sign. The shrinking “denominator” Another reason for the rising rates of delinquency is something TransUnion refers to as “the shrinking denominator,” This is due to the number of cars that are being financedfar less than in the past. This is driven by fewer originations in 2020 that continued to fall due to the an insufficient supply of vehicles and an increase in vehicle repossession in 2021 as well as 2022. These factors have combined to result in an “imbalance between the volume of originations and total account runoff results in lower total outstanding account amount,” found TransUnion. What was the reason that kept automobile loan delinquency rates stable? Data from February 2022 indicates that the assistance of the government played a key role in keeping delinquency rates steady over the past two years. Because a lot of Americans who received extra help during this period also fall into the subprime category which resulted in lower loan originations and lower delinquency rates. Missing loan originations across the board, the majority of auto delinquencies are incurred by those with poor credit scores. So, with fewer low-credit borrowers getting new loans the delinquency rate remained quite low. A lot of low-credit borrowers were unable to get new loans due to less demand for a vehicle with stay-at-home-orders and more strict acceptance criteria that lenders are implementing. The data from the most recent Fed meeting confirm this belief. Much of the end of 2020 and start of 2021 were made up of a lower number of loan originations. The “missing beginnings” – as the Fed stated them meant fewer delinquency rates. If drivers that tend to be a target for repossession or in default on their loans do not have loans and settling their debts, it will result in fewer delinquencies. This, along with federal assistance and lenders extending leniency on payment terms, resulted in fewer late loans and loan originations. Less subprime borrower ranges from 501 to 600 According to Experian. In the third quarter of 2022, the total loans and leases made by all subprime borrowers -which includes deep subprimeis just below 16 percent. If they are separated out deep subprime sank to an all-time low at 1.85 percent. What can you do to ensure that you don’t fall behind in your car loan This is a hot topic this moment, so it could be a great option to save some money. However, if you opt to get an loan with a shorter term typically, it’s wise to make a large in order to avoid paying monthly fees that are too large. Also, if it becomes difficult to pay your monthly payments, think about the possibility of refinancing your loan. Be aware that the length of your term can also increase your interest rate that you pay over the life that you take out the loan. By purchasing a used vehicle, drivers can own quality vehicles at an affordable cost. Also, because new cars appreciate quickly within the first year or two it is more likely that you will stay away from being on the loan due to paying more than the value. In the end, delinquencies are low in the initial two years of the pandemic. The main reasons behind the lower rate of default are lower borrowers, and more assistance from the government to borrowers who typically have issues making payments. With assistance ending and more people seeking automobiles — and by the extension, financing there will likely be a steady increase in defaults over the period 2022-2022. However, this is more of a representation of the end of federal assistance and is not necessarily an alarm signal. Find out more

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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the ways and pitfalls of taking out loans to buy an automobile. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping their readers gain the confidence to take charge of their finances by providing well-written, clear information that breaks down complex topics into manageable bites.

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