U.S. Auto Loan Industry Data Continues to Raise Red Flags
Feb 22nd, 2017 @ 10:11 PM by Amber Nelson
Even as U.S. sales of cars and trucks has risen to new heights in the past year, delinquencies on auto loans are also making records and the number of loans made to subprime consumers has jumped dramatically in recent years.
At the end of 2016, Americans held almost $1.2 trillion in car loan debt, a 9 percent increase from the previous year. At the same time, lending to those with troubled credit has grown steadily, with about one-fourth of all outstanding auto loan debt belonging to subprime borrowers. Unfortunately, delinquencies among that group have also been increasing, hitting a 7-year high in 2016. These loans bring in high profit margins for investors and lenders though, making the risk worthwhile for those involved.
It’s not just those with poor credit who are having trouble paying back their loans though. There are plenty with prime credit who are struggling as well. The Federal Reserve Bank of New York reported a few months ago that more than 6 million U.S. auto loans are delinquent by at least 90 days or more. Total outstanding car loan dollars are increasing at the fastest pace on record and auto loan debt makes up a larger share of total U.S. household debt since at least 2003.
It is true that the national economy is not likely to collapse even if the delinquency rate skyrockets. The U.S. auto loan market makes up a $1.1 trillion chunk of the economy, compared with the $8.9 trillion mortgage market. Plus only 8 percent of all auto loans ($97 billion out of $1.2 trillion) have been securitized for sale on the secondary market.
Still, the numbers are distressing. For example wages have only slightly increased over the past decade and yet car sales and auto loan borrowing has far-outpaced that growth. A major crash in the auto market would definitely have painful ripple effects through the larger economy.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.