According to National Public Radio, rising auto loan delinquencies are only good news for “the repo man”.

NPR’s “Morning Edition” addresses auto loan delinquencies

In an interview with consumer advice specialist Philip Reed, it was pointed out that U.S. car loan delinquencies hit a 17-year high in the 4th quarter of 2007. According to the American Bankers Association, 3.13% of car loans were over 30 days late. According to Reed, “Most consumers are carrying much more debt for their car than ever before. Nearly 25% of these buyers owe more on their vehicle than its wholesale value – a situation known as being “upside down” in the loan.

For those people, this negative equity means that “these people don’t have much flexibility – They can’t even walk away from the loan”, according to Reed. “They have to pay to get free of the debt they have.”

The difference is in the down payment

As we have said before here at Auto Credit Express, when you have a bad credit car loan, you should put as much down as you possibly can, to reduce the amount financed. Philip Reed agrees. He points out that customers today are buying more expensive vehicles and they’re buying them at an earlier age than in years past. He goes on to say, “So as a result they’re putting less down. They’re keeping that money so that they can make car payments.”

Even though Mr. Reed is talking about traditional car loans, it is also a trend in the subprime market as well. That is a trend that has come back to haunt buyers in both lending markets.

Captive finance companies must share the blame

While captive finance companies have very little to do with the subprime car buyer, they are major players when it comes to prime financing and Reed feels that they should shoulder part of the blame. These lenders “have struggled to find ways to keep putting people in cars.” The result is incentives in the form of cash and low interest rates as well as loans than can extend to 72 months and more. By 2007, according to NPR, the average new car loan was close to 64 months.

Denial is not just a river in Egypt

When borrowers fall behind on loan payments, avoidance is not the answer. “That’s a very negative situation to be in,” according to Reed. But he also notes that consumers may have more options than they realize. One of those options is selling an expensive car and, hopefully, with the equity from the sale, using that as a down payment on a smaller, more affordable car.

Buy what you need, not what you want

For bad credit car buyers, this is the mantra that we have been repeating for years. For most subprime customers, the choice is made for them after looking at debt to income. For good credit buyers, buying more car than you can afford is the beginning of a slide down a slippery slope. Reed sums it up perfectly: “People have been sold the American dream, which is a beautiful, sexy, hot car that’s going to make everybody envy them. And now they’re sort of paying the price for making a poor decision.”