New report from Experian Automotive shows a rise in both thirty and sixty day auto loan delinquencies and a significant increase in repossessions that could be a warning sign to credit-challenged consumers
What we see
Here at Auto Credit Express we believe that people with bad credit, thinking of applying for an auto loan, should pay attention to the results of latest report from Experian Automotive that shows an increase in loan delinquencies and defaults during the second quarter of 2014.
We believe they should because before beginning the process, applicants frequently ask us, "How hard is it to get approved for a car loan?" And while each situation is different, the chances of receiving an approval, at least in part, can depend upon the general lending climate – a topic that's addressed in the latest report from Experian Automotive.
Experian Automotive report
The August 20, 2014 report begins with the headline, "Outstanding auto loan balances reach record high of $839.1 billion 30- and 60-day delinquencies show slight uptick."
The report also noted that "60-day loan delinquencies increased by 7 percent to 0.62 percent in Q2 2014 from 0.58 percent the previous year. Additionally, 30-day delinquencies showed a slight increase, going from 2.38 percent to 2.39 percent over the same time period. Moreover, the total balance of loans that are 60-days delinquent has increased by $859 million since Q2 2013, while the balance of 30-day delinquent loans has increased by $2.8 billion from a year earlier."
So what does this all mean? Here is Experian's take on the results:
"The rosy glow of perfect payment performance in the automotive space is beginning to tarnish," said Melinda Zabritski, senior director of automotive finance for Experian Automotive. "We're starting to see a slight uptick in the number of consumers struggling to make their automotive payments on time; however, we have to keep in mind that these percentages are still extremely low. We'll want to keep an eye on how consumers pay their bills in the coming months, as it may dictate the availability of credit in the future."
The report also found that:
- The overall automotive repossession rate saw a significant increase in the second quarter of 2014, jumping more than 70 percent to 0.62 percent from a year earlier
- Finance companies were the only lender type to see a year-over-year increase in repossession rates, rising from 1.13 percent in Q2 2013 to 2.75 percent in Q2 2014
Those "finance companies" the report is referring to are, for the most part, subprime lenders that work with low credit score borrowers. If the uptick in repossessions continues, there's a very real possibility that high-risk lenders will consider reductions in loan approvals.
With that possibility in mind, credit-challenged consumers might want to consider following these suggested tips:
- Know your credit scores and view your credit reports well before you decide to apply for a car loan.
- Correct any mistakes you find in your credit reports.
- Choose an affordable subcompact, compact or mid-sized car with a payment at or below 10% to 15% of your gross monthly income (the lower the better).
- Lenders will be looking for low LTV (loan to value) ratios, the higher the down payment, the better the deal will look. Not including new car rebates or dealer cash, a down payment of 15% or more will increase the chances of a loan approval.
The Bottom Line
With the increase in subprime car loan delinquencies and repossessions, subprime lenders will certainly be taking a closer look at applications and, in the long run, may be pulling back on the number of loans they approve. By following these tips, applicants will give themselves a better chance for an approval.
Another tip: Auto Credit Express matches consumers with credit difficulties to those new car dealers who can offer them their best opportunities for auto loan approvals.
So if you're ready to establish your credit, you can begin now by filling out our online car loan application.