The subprime auto market looks to be in poor health as the number of borrowers with outstanding loans that are more than 60 days overdue continues increasing. While the number has a tendency to rise and fall between seasons, the general trend toward indebtedness has been going up since 2015, with increasingly more customers boasting lackluster credit scores becoming incapable of footing their transportation bill.
Delinquencies skyrocketed in 2020, as government lockdowns pushed many out of work and now appear to be stalled due to a recovery plan that primarily seems to be serving cooperate interests and the wealthiest socioeconomic classes. Though it should be said that middle and lower-class families had been losing ground for decades, at least according to the latest Pew Research data. Pandemic-related complications only served to accelerate the existing financial disparities on all fronts. We are now on course for poorer people to have even less money moving forward, especially in the world’s most developed countries.
I wonder why so many people are defaulting on their car loans…
The Wall Street Journal provided some hard figures regarding the increased number of delinquencies this month and framed the matter as one stemming from an “uneven economic recovery and a deep divergence between those who can navigate the coronavirus downturn and those who can’t.”
Sadly, those who cannot are likely to see their vehicle repossessed as they experience another ding to their already low credit score.
A greater share of people with low credit scores has been falling behind on their car payments in recent months, a sign of stress among consumers whose finances have been hit hard by the pandemic.
Some 10.9 [percent] of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7 [percent] a year prior, according to credit-reporting firm TransUnion. It marked the sixth consecutive month-over-month increase and the highest level in monthly data going back to January 2019.
More than 9 [percent] of subprime auto borrowers were more than 60 days past due in the fourth quarter, the highest quarterly figure in data going back to 2005.
“We are seeing the separation between the consumers who are back on their feet and those who aren’t,” said Satyan Merchant, head of TransUnion’s automotive financing arm.
While breaks were issued to some renters and business owners, average folks tended to benefit most from postponements on paying back federally backed student loans and mortgages. The Wall Street Journal suggested this gave a potentially unfair advantage to homeowners and college graduates, both of which are likely to have stronger financial footing than someone claiming neither attribute. Some lenders also decided to provide temporary relief on monthly payments at the start of the pandemic. But that leniency began to evaporate by the middle of 2020, which resulted in a surge of defaulting customers beginning last April.
We are now in a situation where the number of subprime borrowers has declined too, with many people becoming disinterested in accumulating debt or incapable of being approved for a loan. But those with excellent credit scores appear to be able to make their payments with historically good consistency. That’s likely to offer little consolation to those occupying the former group, however.