Auto Loan Delinquency Rates Rising

The latest quarterly report from Experian Automotive shows an increase in thirty- and sixty-day loan delinquencies

Experian Automotive Report

Auto Loan Delinquency Rates Rising

Consumers shopping the car market – especially those with bad credit – should be aware of the latest quarterly report from Experian Automotive as its findings reflect the current lending market.

The November 19, 2014 report states that, “30-day delinquencies grew 3.7 percent from the previous year. Similarly, 60- day delinquencies jumped 8.6 percent during the same time period.” It also found that “at a state level, states in the South accounted for four of the top five highest delinquency rates in both the 30- and 60-day category. On the flip side, the states with the lowest delinquency rates in both categories primarily resided in the Midwest and Northwest regions.”

Here’s Experian’s take on the results:

“While we have observed a rise in delinquencies over the past few quarters, it was to be expected due to the growth in subprime loans. We have to keep in mind that a majority of the market is still in the prime risk category,” said Melinda Zabritski, Experian’s senior director of automotive credit. “As long as consumers continue to do a good job of making their auto-loan payments on time and lenders keep a close eye on how rates fluctuate year over year, the industry should remain relatively stable. Understanding the shifts in payment behavior and the industry’s risk tolerance are important for the market because these insights can trigger actions that affect vehicle prices, loan terms or interest rates.”

What It All Means

Borrowers with problem credit need to understand that the “risk tolerances, loan terms and interest rates” Ms. Zabritski is talking about will probably affect auto loans for people with bad credit first, since most of the increase in auto loan delinquencies is taking place in the subprime sector.

With this in mind, credit-challenged consumers consider these suggestions:

  • View your credit reports (and correct any mistakes) and know your credit scores.
  • Choose an affordable vehicle with a monthly payment not more than 10% to 15% of your gross monthly income (the lower the better).
  • Subprime lenders like low loan-to-value ratios. The higher the down payment, the better the deal looks. Not including new car rebates or dealer cash, down payments (including equity in a trade in) of 15% or more will increase the chances of an approval.

The Bottom Line

With loan delinquencies on the rise, especially in the subprime sector, buyers who know their credit scores, credit report and have cash down and/or trade equity will have a better chance of getting their car loan application approved.

So if you’ve done all this and you’re ready to reestablish your auto credit, you can begin now by filling out our online car loan application.

Posted on November 21, 2014 by in Auto Loans
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