TransUnion: Auto loan delinquencies rise to highest level in over a decade

11/14/2022 / By Belle Carter

TransUnion, a credit agency that tracks more than 81 million auto loans throughout the United States, has reported that Americans are failing to pay their auto loans as borrowing costs continue to rise.

According to the credit agency, 1.65 percent of auto loans were at least 60 days behind their monthly installment in Q3 – the highest rate of delinquencies in over a decade.

“Consumers still want to stay current as best that they can. But this inflationary environment is making it challenging,” said Satyan Merchant, TransUnion’s senior vice president. “It leaves fewer dollars in their pocket to make the auto loan payment because they’ve got to pay more for eggs and milk and other things.”

The delinquencies rose following the end of loan-accommodation programs that were created during the Wuhan coronavirus (COVID-19) pandemic. These programs were designed to assist consumers who may have lost their job to avoid having a car repossessed. TransUnion reported that approximately 200,000 car loans that previously took advantage of the pandemic-era accommodation are now listed as 60 days delinquent.

“There has been this effect where the delinquency that may have occurred over the last few years is really just pushed out or delayed because that consumer didn’t have to make payments or their status was on an accommodation. So now some of those are hitting,” Merchant said.

Fed exacerbates problem by raising interest rates again

In an attempt to fight inflation, the Federal Reserve continues to raise interest rate, causing a growing number of Americans to fall behind in paying off their debts.

Bloomberg recently reported that car loan interest rates have hit the highest level since 2019. Analysts say this sparks an affordability crisis where average Americans can no longer afford new or used cars. (Related: High car loan rates are driving away prospective buyers.)

According to Edmunds, an American online resource for automotive inventory and information, the average annual percentage rate on new-car loans was 6.3 percent in October, the highest it has been since April 2019.

With the Fed raising interest rates again by 75 basis points earlier this month, the federal funds rate will have a new range of 3.75 to four percent – the highest level since 2007.

“New-vehicle inventory might finally be improving, but the automotive industry is still on a long road to recovery because rising interest rates are creating a major barrier to entry for car shoppers,” said Jessica Caldwell, Edmunds’ executive director of insights.

While it is true that delinquency rates are on the rise, it is important to consider the factors that are driving this increase. The issue of supply and demand remains the main driver of price increase in the automotive industry. With lower inventory and higher demand, the vehicles become more expensive.

In September, the average transaction price for a new vehicle was $47,138, up almost $2,600 over the same month last year, according Edmunds. The average price paid for a used vehicle was $30,566, a jump of almost $2,500 from September 2021.

This also means higher rates – 4.33 percent for new cars and 8.62 percent for used cars, according to global information services company Experian.

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