People, especially those with shaky credit, are having a tougher time than usual making their car payments.
According to Bloomberg, almost 5% of subprime car loans that were bundled into securities and sold to investors are delinquent, and the default rate is even higher than that. (Depending on who’s counting, delinquency is up to three or four months behind in payments; default is what happens after that). At just over 12% in January, the default rate jumped one entire percentage point in just a month. Both delinquency and default rates are now the highest they’ve been since 2010, when the ripple effects of the recession still weighed heavily on many Americans’ finances.
According to recent data from TransUnion, this increase is being borne out, albeit at a lower level, across the entire auto lending category. The credit bureau said that the rate of borrowers overdue on their payments by 60 days grew from 1.16% at the end of to 1.24% a year later. That might not sound like much, but it’s actually an increase of nearly 7% in a year.
This is bad news on a number of levels. It shows that lenders have been getting sloppier again with their underwriting practices, making loans for risky borrowers who might not be able to pay them back. These rising delinquency and default rates are occurring as the amount people are borrowing continue to increase, raising the stakes for borrowers who fall behind on their payments. TransUnion found that the average car loan was roughly $18,000 at the end of 2015, a 3% increase from a year earlier.
Ironically, experts say one culprit is the price of gas. Cratering energy prices has made it tough for oil and gas companies to make money, and many of them are laying people off — which can obviously make staying current on your car payment a challenge. TransUnion’s data found that car loan delinquencies skyrocketed in Texas, Oklahoma, and North Dakota, all states where the energy industry is a big part of the local economy. Given that economists think cheap oil prices are here to stay for a while, this means we could be seeing things get worse for borrowers before they get better.