Delinquencies on Car Loans Harmful to Credit Scores


More and more common today are the delinquencies on car loans. The data of such occurrences can also often give a warning sign for the credit of the consumer responsible for poor loan payment history.

In recent years, more Americans now are at the very least three months delinquent on their auto loans than there have been of case over several decades. This is the most ever since the records began through the Federal Reserve Bank.

Now over seven million Americans total, this is the highest figure estimated by the FRB. If expressed as a percentage of total debt taken out, this is the highest rate of delinquency seen in about seven years — one million more than in 2010.

The rate of delinquency has focused on borrowers with poor credit. Roughly 8.2 percent of people with a score below 620 at the beginning of the loan, is up from the previous 5.5 percent at the end of 2012. At the height of the financial crisis, the percentage was at 9.4 percent. Those with subprime scores at the beginning of their loan, 620-659, the most recent reading of delinquency was at 2.9 percent. Previously, that peak was at 3.6 percent.

Those with weaker credit scores and the deterioration among that group is in stark contrast with the upper echelons of debt holders measured by credit scores.

There has been much made about the $1 trillion of credit card debt among U.S. citizens. However, car loans are also placing amongst the liabilities. The loans are increasingly heavy burdens forced upon the shoulders of those in debt.

Car Loan Delinquencies Aren’t the Only Debt Problems Plaguing Americans.

Last year, originations reached $584 billion, which is up 2.6 percent from two years prior. This increase shows the rising debt remain stagnant as well as the appetite of lenders who extend those loans.

The Fed says that with the rise in auto loan participation, there are now more borrowers at the subprime credit level. Because of this, a larger group of borrowers are at a higher rate of delinquency. About 2.4 percent of the auto loans are in major delinquent status. These delinquencies have risen 1.5 percent since 2012.

All of this is amid record-low unemployment and rising wages. Despite the higher salaries, it still isn’t sufficient for households to work with while under the burden of their debt. This debt ranges anywhere from car loans, to student loans, to credit cards.

The price of vehicles and the amount to finance said cars are also on the rise. The average price for cars is about $36,000 which is up by 3 percent from last year. This rise outpaces the growth in wage.

Given employment is as tight as it can be, inflation is about to rise, however slowly it might do so. Unfortunately, it seems at this stage that things are as good as it gets, which isn’t saying too much.

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