Our Developing Car-Loan Problem
By: Brian O'Connell

NEW YORK (sbup) — Cars and trucks are flying out of dealer lots like jackrabbits, but once they’re parked in consumers’ driveways, their vehicle loans are getting paid off at a turtle’s pace.

According to Bloomberg, U.S. auto sales rose to 15.2 million in May, the sixth time in seven months vehicle sales have crested the 15 million mark — something that hasn’t happened since February 2008, just as the economy was slipping into disaster mode.

But thanks to slower repayment activity from subprime borrowers, the U.S. auto loan delinquency rate is down on a year-to-year basis, according to data from Transunion.

The rise isn’t exactly monumental — to 0.88% in auto loan accounts past due from 0.82% from the first quarter of 2012 to the first quarter of 2013.

But it signals a trend reversal in which U.S. auto consumers are reverting to their pre-recession ways of racking up big debt and taking longer to pay it off.

The trouble centers mostly on subprime auto borrowers, and the damage isn’t so great that they can’t turn things around quickly by resuming their prudent, on-time car payment ways, Transunion reports.

Altogether, subprime borrowers make up 15% of total U.S. auto loan accounts — about the same percentage as last year, but lower than the rate of loans seen during the past several years (which reached its high-water mark at 20.9% in the first quarter of 2009.)

Yet while the number of subprime auto loan borrowers have declined, the amount of money borrowed from that demographic has risen. That’s fueling the rise in delinquent auto loan payments.

"We've been monitoring the auto loan landscape closely for some time to see if increased subprime lending would start pushing delinquency rates up," says Peter Turek, vice president of automotive for TransUnion. "We found that while subprime borrowers are receiving more auto loans, the percentage of these loans to all auto loans made remains the same as last year, so there has not been a dramatic effect to the overall delinquency rate."

The overall auto loan market has strengthened in recent years, he says, but the subprime portion of that market is cause for concern.

"On one hand, subprime borrowers make up a smaller percentage of the overall market and their delinquency rates are actually the same as they were two years ago,” Turek says. “However, their account balances have risen more than $1,200 in that same period, placing more of an economic burden on lenders if they were to go delinquent."

Banks and auto finance companies won’t stand for that.

If auto loan payment delinquency rates continue to rise, especially in that subprime borrower demographic, expect lenders to tighten the spigots and make it harder for many Americans to get a car loan.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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