In consumer lending right now, auto loans are the squeaky wheels.
So far, auto borrowers have been the big beneficiaries of lender forbearance. At major banks and lenders, the median amount of forbearance loans reported after the first quarter was 7.5% for car loans, compared to 3.6% for credit cards, according to figures compiled by Autonomous. Research.
These are early figures, which only represent the initial phase of this crisis. Yet this indicator is consistent with other warning signs. First-quarter delinquency rates on car loans from major banks and lenders, defined as people at least 30 days late on a payment, jumped an average of 0.26 percentage points from the previous quarter. previous year, according to figures compiled by Autonomous. By comparison, chargebacks on credit cards rose just 0.07 points, Autonomous found.
Auto loans also entered this already somewhat tense crisis. The percentage of auto loan balances past due for 90 days or more was 4.9% at the end of last year, according to the Federal Reserve’s Household Debt and Credit Survey. That was 38% higher than its quarterly average since 2003. All other major consumer loan categories except student loans were below their long-term average. Auto loans have also increased as a percentage of total consumer debt over the past decade.
A notable difference emerging between this crisis and the financial crisis is the speed at which consumers have reduced their card borrowing. After the September 2008 financial meltdown, card borrowing rose another 15% to its peak in 2009. But this time around, consumer credit card balances at US banks are already down 5% year-to-date, according to Federal Reserve data via April 15.
Capital One Financial,
in a call with analysts last week, attributed its higher rate of forbearance in auto loans to the fact that the size of payments was much larger than minimum credit card payments – and therefore a larger pressure on a cash-strapped household in the short term. The bank also said people are highly motivated to look for ways to keep their car, which makes them more likely to seek forbearance on car loans.
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Auto lenders also have another unique thing to worry about in this crisis: salvage values. Although forbearance for now means there will be no repossession, even if a lender were to repossess a car, other challenges would follow. Consumer data collection and analysis firm JD Power found that in early April, used car auctions were happening at a fraction of their normal frequency. JD Power expects prices to fall 8% to 16% through June, with the most likely scenario that by the end of the year prices will fall by around 4% to 6 %.
The big question that hangs over all consumer debt is how effective stimulus checks will be in helping borrowers stay current. This week, OneMain Holdings,
which provides personal loans, some for buying cars, said while 30- to 89-day delinquencies rose 0.32 percentage points year-over-year in the second half of March, April , the increase slowed to about 0.15 points. OneMain attributed this to borrower relief programs and government stimulus checks.
OneMain shares rose about 12% on Tuesday after the report. Investors in banks and auto loans will need to see the same thing.
Write to Telis Demos at [email protected]
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