The number of late payments is low for car loans, good news for new borrowers

Consumers with at least a good credit history are meeting their car payments on time, based on the latest delinquency figures from credit bureau TransUnion for the third quarter.

That’s good news for most auto buyers, as it signals the economy is recovering from the early days of the pandemic and auto loans should continue to be readily available. If delinquencies showed a sudden spike, auto lenders would make loans harder to get for anyone with less than perfect credit.

Regardless of TransUnion’s report, however, there are signs that auto loans are indeed becoming harder to obtain for consumers with the riskiest credit histories. This trend predates the pandemic. But overall, demand for new and used cars is strong, so much so that dealers are complaining they are running out of inventory.

So far, “there hasn’t been a significant effect on delinquency,” across all auto loans, said Matt Komos, vice president of research and consulting at TransUnion, during an interview. a telephone interview.

Specifically, TransUnion reported that the 60-day auto loan default rate for the third quarter was 1.45%. That was a small increase from 1.40% a year ago, but not bad considering business closures in the second quarter and a spike in unemployment due to the coronavirus.

Auto industry analysts and auto lenders themselves are watching third quarter numbers closely to see how well the economic recovery is unfolding. For auto loans in particular, the third quarter numbers are important because at the start of the pandemic, many lenders were offering consumers the option to defer monthly car payments for up to 90 days.

By the end of the third quarter, most of these deferrals had expired. During the term of the deferrals, none of these loans would show up as past due. It was therefore feared that the delinquency rate would jump when these customers had to resume their payments.

Ally Financial Inc., for example, said about 30% of its 1.3 million consumer auto accounts took advantage of a deferral program, and nearly all of the deferrals expired at the end of September.

At the end of the quarter, 89% of those deferments were either in progress, meaning no payments were overdue for 30 days or more, or paid in full, Ally said last month in its third quarter report. . Another 3% had extended payments and 8% were either over 30 days late or charged off. That 8% of deferred accounts represented about 2.4% of all accounts, Ally said.

For the third quarter overall, however, Ally reported that the retail auto delinquency rate, over 60 days past due, was just 0.47%, down from 0.56% a year earlier. early.

Naturally, low delinquencies are also a product that borrowers get loans from in the first place. Ally said customers with non-prime credit accounted for 11% of its new loans and leases in the third quarter, the same as a year ago. Ally defines unpreferred credit as credit scores below 620.