The second quarter 2014 auto delinquency report from TransUnion shows an increase in auto loan delinquency rates as well as auto loan balances rising

Problems with Problem Credit Auto Loans Rising


We've just reviewed the latest report from TransUnion on auto delinquencies here at Auto Credit Express and, reflecting an earlier report from Experian Automotive, it contains information that consumers with bad credit should be aware of.

It also helps answer one of the most-asked questions we get, "How difficult is it to get an auto loan with poor credit?"

Latest TransUnion Report

According to TransUnion, the amount of car loan debt for borrowers has risen close to 13% since the economy began to turn around - a trend that began in the first quarter of 2011.

Additionally, the national auto loan delinquency rate (borrowers 60 or more days past due) "increased to 0.95% in Q2 2014, up from 0.87% in Q2 2013. However, auto loan delinquencies dropped on a quarterly basis from 1.00% in Q1 2014."

"Auto lending remains similar to what we have observed during the last several quarters," said Peter Turek, automotive vice president for TransUnion. "Delinquency rates remain relatively low while auto loan balances keep rising -- both metrics aided by increasing auto loan originations."

Subprime Lending

The report also contained some news for borrowers with poor credit:

The subprime delinquency rate (those consumers with a VantageScore® 2.0 credit score lower than 641 on a scale of 501-990) increased from 4.12% in Q2 2013 to 4.61% in Q2 2014. The share of non-prime, higher risk loan originations (with a VantageScore 2.0 credit score lower than 700) grew by 56 basis points (from 33.80% in Q1 2013 to 34.36% in Q1 2014). This percentage is still lower than what was observed seven years ago near the beginning of the recession (38.98% in Q1 2007).

"It will be interesting to see if lending to the subprime segment of the population continues to grow and what, if any, the impact will be on the overall delinquency rate," said Turek. "Historically, increased subprime lending pushes the overall delinquency rate higher. This is not necessarily a bad thing for the auto ecosystem -- consumers find reliable transportation for work, lenders actively minimize the risk, and dealers sell more cars."

Tips for Credit-Challenged & Bad Credit Borrowers

With the report in mind, here are some tips for problem credit borrowers before they visit an inhouse financing dealership near them:

  • Know your credit scores and the information in all three credit reports
  • Set aside at least a 10 percent down payment in cash or real trade equity
  • Keep the loan term as short as possible
  • Consider a subcompact, compact or affordable midsize car – putting off something more expensive until after reestablishing your credit.

The Bottom Line

As we see it, while subprime lenders continue to provide high risk auto loans to higher-risk borrowers, any major increase in delinquencies could lead to a reduction in the number of loan approvals.

Something else consumers with bad credit should know: Auto Credit Express matches buyers with past credit issues to dealers that can offer them their best chances for auto loan approvals.

So if you're ready to reestablish your auto credit, you can start now by filling out our online auto loan application.