Car Owners Are Struggling With Their Auto Loans

A recent study by TransUnion shows a potentially worrying trend in the auto loan market – delinquency rates are rising. Almost 3.5% of customers with car loans are now behind on their payments.

A rising delinquency rate may indicate that families are struggling with debt, especially since many families are prioritizing paying off car loan repayments. If you’re struggling to clear all your debt repayments, however, you should consider paying off your most expensive debt first – and for most people, that means credit cards.

  • Almost 3.5% of customers with car loans are now behind on their payments.
  • People who may have missed out on car loan repayments during the pandemic were able to attend due to government support and the stimulus program. Now they are falling behind.
  • The total number of auto loans in the United States has decreased due to rising interest rates.
  • While it is important to prioritize high-cost debt, usually credit card debt, car loans are secured by the vehicle and can involve repossession if payments are not made.

Almost 3.5% of Car Loans are Delinquent

A recent TransUnion study found that, as of Q2 2022, 3.34% of auto loans were more than 30 days delinquent, and 1.43% were more than 60 days late on payment. This is the highest rate in five years, and a significant increase in the last two years.

TransUnion suggested several reasons for this increase. Firstly, they point out, the pandemic probably created a backlog of offences. Many people who may have fallen behind on their car loan repayments during the pandemic were not due to government relief, stimulus programs, or car loan providers offering temporary assistance to their customers.

Second, while the number of delinquent auto loans is at a five-year high, the total number of auto loans has declined since 2018. This is partly due to limited supply during and just in the wake of the pandemic, which meant many customers struggled. even find a car to get money. It’s also about the rising cost of new vehicles – the average cost of a new vehicle is over $48,000, an all-time high.

Car loans are also more expensive due to rising interest rates. Over the past month the weighted average car loan rate across all loan types increased by 2.8 percentage points to 10.6%. People with low credit scores are likely to be hit hardest by these price increases. In October, deep subprime loans, with a credit score below 580, saw an average rate of 18.2% on a new vehicle loan and 21.8% on a used vehicle loan.

In short: it appears that many people who might have fallen behind on their car loans during the pandemic, but kept solvent with motivated payments, are now doing so. At the same time, the overall number of car loans is decreasing. Both factors together mean that the conviction rate is at an all-time high.

Should I Prioritize the Car Loan?

The TransUnion study also revealed some interesting data about how consumers prioritize their payments. The study found that most people view their monthly car loan payment as one of their most important financial commitments – just behind their mortgage repayments, and far more important than credit card repayments.

And, this makes sense. Car loan repayments involve a tangible asset – a vehicle – that you already use. In addition, the increasing cost of cars over the past year means that many people are in a positive loan-to-value position: that is, their car is worth more than the loan they took out to buy it. These two factors explain why paying back a car loan is seen as a high priority in many households.

Consumers should be wary of prioritizing unsecured debt over their car loan. If you’re having trouble keeping up 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 charge a penalty, and eventually repossess the vehicle if the loan defaults.

As with all types of debt, falling behind on your payments can have a negative impact on your credit scores so it’s important to budget appropriately to meet borrowing obligations.


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