The number of delinquent auto loans is increasing

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  • “Serious” delinquencies aren’t a threat, according to consumer credit agency TransUnion, but there are signs that trouble could be brewing in the auto loan world.
  • The number of auto loans over 30 days past due has increased, and there are many anecdotal stories of people unable to pay due to the coronavirus-related economic downturn.
  • Oh, and Americans currently have about $1.2 trillion in auto loans outstanding. Phew.

    Trends indicate that some of the financial troubles that began for many families as COVID-19 approached this spring are beginning to recede, but if you’re a glass-half-empty type of person, you’ll appreciate it: new data is outflows that show signs of financial trouble in the auto loan market.

    According to TransUnion’s latest monthly snapshot report that surveyed the financial sector in August, the number of 30-day overdue accounts increased slightly, to 3.1% in August from 3.0% in July.

    One of the reasons that TransUnion isn’t quite sure where things are going is that a lot of people with car loans participate in some sort of forbearance program, which is a way of saying that the lender approves the temporary suspension of loan repayments but does not reduce the amount due. Given the job losses and other economic hardship that COVID-19 has brought to many people, the percentage of auto accounts on forbearance rose to 6.2% in July, then dropped to 4.3% in august. This is where we can best see the change from pre-COVID levels. Only 0.5% of auto accounts were forbearance in August 2019, according to automotive news, although at this time 3.9% of all auto accounts were at least 30 days past due, so it appears that coronavirus-related forbearance is helpful to a segment of the loan-holding population.

    Anecdotally, however, things look bad. MarketWatch spoke with a number of people who are struggling to balance their car loan payments with other bills, and the publication noted that the federal CARES Act, which provided forbearance for home loans, did not cover car loans in any way. And people are still borrowing for wheels, with $21.6 billion in subprime auto bonds issued in 2020, according to Finsight and quoted by MarketWatch. That’s about average, although the economy has been anything but normal this year.

    Is an increase in payment defaults to come?

    Whether all of these signs point to people possibly missing or delaying their payments, or if they hint at something bigger, is not yet clear. That’s because the abstention numbers could be hiding something brewing behind the scenes. TransUnion said the slightly higher rate of 30-day overdue accounts could mean more delinquencies are on the way.

    “Many consumers continued to make payments even when enrolled in financial accommodation plans,” Matt Komos, vice president of research and consulting at TransUnion, said in a statement. “The real litmus test for the health of consumer credit will become evident in the coming months as these guarantees begin to expire and consumers have less payment flexibility.”

    TransUnion found that “serious” consumer-level defaults for auto loans improved in August, but signs point to “potential challenges in the near future,” TransUnion said, especially as more Government assistance for those affected by the coronavirus does not currently appear to be coming from Washington.

    There is another aspect of the current auto loan situation to consider here. According to the Federal Reserve Board of Governors, there is more money in auto loans outstanding than ever before. How much? About $1.2 trillion. This number has increased since the third quarter of 2010, when it hit a recent low of $698 billion.

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