Car Owners Are Struggling With Their Auto Loans

A recent TransUnion study points to a potentially worrying trend in the auto loan market – delinquency rates are on the rise. Almost 3.5% of customers with auto loans are now in arrears.

Rising delinquency rates may indicate that households are struggling with debt, especially considering that paying off a car loan is a high priority for many households. However, if you’re struggling to meet all of your debt repayments, you should consider paying off the most expensive debt first — and for most people, that means credit cards.

  • Almost 3.5% of customers with auto loans are now in arrears.
  • People who may have missed their car loan payments during the pandemic were able to meet them thanks to government support and a stimulus program. Now they are lagging behind.
  • The total number of auto loans in the US is down as interest rates rise.
  • While it’s important to prioritize high-cost debt, usually credit card debt, auto loans are secured by the vehicle and can include repossession if payments aren’t made.

Almost 3.5% of car loans are delinquent

A recent TransUnion study found that in Q2 2022, 3.34% of auto loans were more than 30 days past due, and 1.43% were more than 60 days past due. This is the highest figure in the last five years and a significant increase in the last two years.

TransUnion suggested several reasons for this increase. First, they suggest that the pandemic may have delayed the number of offenses. Many people who might have fallen behind on their car loan payments during the pandemic didn’t because of government relief, stimulus programs or car loan providers offering temporary help to their customers.

Second, while the number of delinquent auto loans is at a five-year high, the total number of auto loans has been declining since 2018. This is partly due to the limited supply during and immediately after the pandemic, which meant many customers struggled. even find a car to finance. This is also due to the rising cost of new vehicles, with the average new vehicle costing more than $48,000, a record high.

Car loans are also more expensive because interest rates are rising. During the last month, the weighted average car loan rate for all loan types has increased by 2.8 percentage points to 10.6%. People with poor credit are likely to be hit hardest by these price increases. In October, a subprime borrower with a credit score below 580 saw an average rate of 18.2% for a new vehicle loan and 21.8% for a used vehicle loan.

In short: It appears that many people who may have fallen behind on auto loans during the pandemic but were kept solvent by stimulus payments are now doing so. At the same time, the total number of car loans is decreasing. The two factors combined mean that crime rates are at an all-time high.

Should I prioritize my car loan?

The TransUnion study also revealed some interesting data about how consumers prioritize their payments. The study found that most people consider their monthly car loan payment to be one of their most important financial obligations – just behind the mortgage payment and far more important than credit card payments.

And it makes sense. Repayment of car loans is related to the material value – the vehicle that you already use. Additionally, the rise in car prices over the past year means that many people are actually in a positive loan-to-value position: that is, their car is actually worth more than the loan they took out to buy it. Both of these factors explain why paying off a car loan is considered a high priority in many households.

Consumers should be cautious about choosing unsecured debt over a car loan. If you’re having trouble with your car loan, your lender may be able to offer flexibility in your payments, so you should contact them before you miss a payment. If you miss a payment, your lender will likely impose penalties and eventually repossess the vehicle if the loan defaults.

As with all types of debt, late payments can have a negative impact on your credit score, so it’s important to budget accordingly to meet your loan obligations.


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