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Auto loan defaults increase as loan and accommodation programs end




Sefa Ozel | Istock | Getty Images

With inflation cutting into the budgets of Americans, a growing percentage of people with car loans are struggling to make their monthly payments.

TransUnion, which tracks more than 81 million U.S. auto loans, said Tuesday that the percentage of loans at least 60 days past due reached 1[ads1].65% in the third quarter, the highest rate of 60-day defaults in more than a decade

“Consumers still want to stay informed as best they can. It’s just this inflationary environment that makes it challenging,” Satyan Merchant, senior vice president at TransUnion, told CNBC. “It puts fewer dollars in their pocket to pay the car loan, because they have to pay more for eggs and milk and other things.”

The biggest effect is felt among subprime borrowers who have lower credit scores and often have lower incomes.

In September, the average transaction price for a new vehicle was $47,138, up nearly $2,600 from the same period last year, according to auto research firm Edmunds. The average price for a used vehicle was $30,566, a jump of nearly $2,500 from September 2021.

The increase in defaults also follows the end of loan-to-stay programs that were set up during the pandemic. These programs were developed to help consumers who may have lost their jobs avoid having a car repossessed because they could not make the monthly payment.

“There’s been this effect where the crime that might have occurred in the last few years is really just being pushed out or delayed because that consumer didn’t have to pay or their status was in an accommodation. So now some of them are hitting,” said Merchant.

TransUnion said roughly 200,000 auto loans that previously took advantage of the pandemic accommodation are now listed as 60 days past due. About 100,000 accounts past due for more than 60 days remain in accommodation programs, the credit firm said.

Despite the rise in defaults, Merchant believes the car loan market remains healthy. The average interest rate for a new vehicle loan rose to 5.2% in the third quarter, while the average interest rate for a used car loan reached 9.7%, according to TransUnion. Both are up more than one percentage point compared to the same period last year.

The higher interest rates are pushing many consumers to stretch out their loan terms to at least seven years, Merchant said. Nevertheless, crime has been somewhat kept in check by low unemployment.

“If we get into a position where employment starts to be a challenge in the U.S. and unemployment rises, that’s when the industry will really start to be concerned about a consumer’s ability to pay their auto loans,” he said.

— CNBC’s Meghan Reeder contributed to this report.



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