Smart Borrower Blog

Car Loan Delinquencies Continue to Rise Even As Unemployment Falls

Nov 29th, 2017 @ 9:35 PM by Amber Nelson

More and more Americans are falling behind on their car loan payments, according to new data from the New York Federal Reserve , a sign of distress in the auto lending industry.

At a time when the unemployment rate (now at 4.1%) is better than it has been in over 17 years, U.S. consumers should have an easier time paying for things like their car loan payments. The economy has seen delinquency rates falling on mortgage and credit card debt over the last several years, yet among auto loan borrowers with subprime credit the delinquency rate continues to climb.

As of the third quarter of 2017, there were 6.3 million borrowers behind on their car payments by 90 days or more. That’s an increase of 400,000 people from the previous year. The likelihood of repossession increases dramatically once a borrower reaches that 90-day threshold.

The root of the problem seems to be that auto finance lenders are lowering their lending standards in order to keep business flowing. There are striking differences in the delinquency rates of subprime borrowers who obtained car loans through these dealership lenders versus those who financed their vehicles through banks and credit unions (9.7% compared to 4%).

“Delinquency rates among auto finance lenders are considerably higher and rising, especially for subprime borrowers, in part reflecting differences in underwriting standards,” said Wilbert van der Klaauw, senior vice president at the New York Fed.

Even if millions of subprime borrowers start defaulting on their car loans, it is not likely to bring down the whole economy but the effects could ripple through. “Although the impact on the larger financial sector may be muted, there are over 23 million consumers who hold subprime auto loans,” the Fed wrote in its blog. “These consumers may find their credit reports further damaged after a default or encounter further financial difficulties after experiencing a car repossession.”


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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