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Credit Card Applications » News » Other » Auto loan delinquency rates increase in third quarter

Auto loan delinquency rates increase in third quarter

November 24, 2009
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In this year's third quarter, the auto industry is not looking so very well with the increase of car loan delinquencies. Banks, financial companies and automakers are seeing the risk of losing a total of $22.9 billion from distributing loans directly to consumers.

Data produced by a preliminary study conducted by Experian's auto group reveals that 30 days of delinquencies show an 8.1% increase over a year earlier. According to Melinda Zabritski, director of automotive credit for credit-rating agency Experian's auto group, the figure means that $22.9 billion worth of loans are 30 days late.

If the delinquency rates are doubled as in a 60-day delinquency report, the loans would be considered repossessions. 12.7 percent which is equal to $7 billion would be at risk of being unpaid. Zabritski reiterates that the figures are to be taken seriously.

Meanwhile, TransUnion's financial services group, automotive vice president Peter Turk suuports Zabritski's claim saying that auto loan delinquency rates have continuously increased during the entire year. He says, "Consumers are continuing to feel pinched in the disposable-income areas so we fully expect the delinquency rate will increase through the end of the year."

This is not a good picture because as the delinquencies in auto loan increase, banks and other credit providers have no choice but to stick with their own lending standards which consumers are already stressed to meet. With the banks unwillingness to loosen standards, car sales will decrease. On October and September, auto sales have plummeted to bellow a million. This is believed to have been caused by the consumers' inability to access loans.

Bobbie Britting, research director for consumer lending at consultancy TowerGroup, explains that banks and other creditors will continue to implement tougher standards as soon as people are not able to pay their dues on time. This according to her is already happening to the auto loans. In example, she mentions General Motors' financing arm which has ceased to produce car loans to anyone with a low (below 700) credit score. She says, "Delinquencies definitely make banks more hesitant... They change their credit policies, they lower the amount they're willing to loan. ...Part of it is that they don't have as much money to loan today."

One of the predictions made is that 1.6 million vehicles are bound to be reposed this year. According to Phil Reed, senior consumer advice editor of a car-shopping website, Americans put great value to their cars. Apparently, most consumers purchase and drive cars they can not really keep up with. This is largely because the car is something which is used to visually represent how one person is doing in his life and in the world. Also, for most people, cars also represent who they envision themselves to be.

Reed adds that the reason why most consumers have cars which they fear of losing in repossession is easy credit. This caused most people to purchase vehicles more than they can actually afford. They think that they would just have to stretch to make it work. However, high gas prices earlier this year strained many car owners. In addition, increasing unemployment also is taking a toll.

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