Auto loan delinquencies in the coming year are predicted to remain at a low level, virtually flat at year-end 2019 compared with year-end 2018 — despite growth in loans to customers with subprime credit — according to a forecast by Chicago-based credit bureau TransUnion.
Outlook For Auto Delinquencies Remains Flat, Despite A Cautious Increase In Subprime. Delinquencies should stay flat in 2019 despite a cautious increase in subprime loans, according to a TransUnion forecast.
“What we’ve seen in the last four quarters is, delinquencies are starting to stabilize in auto,” said Brian Landau, senior vice president and TransUnion’s auto line of business leader, in a phone interview. That’s good news for consumers since stable delinquencies imply lenders would continue to provide relatively easy access to credit.
TransUnion predicted the “serious” delinquency rate would be 1.44% for the fourth quarter of 2019, virtually even with a predicted rate of 1.43% for the fourth quarter of 2018. TransUnion defines serious auto loan delinquencies as those with payments 60 or more days past due.
To put those numbers in some context, serious delinquencies were just 1.27% for the fourth quarter of 2010, reflecting the fact that lenders clamped down on credit during the Great Recession for all but the least risky borrowers.
At the peak of the financial crisis, Landau said, serious delinquencies were closer to 1.7% of the loans outstanding.
For the last two years, some auto lenders — especially banks, which are less dependent on auto loans than the automakers’ captive finance companies — cut back on loans to customers with subprime credit. Growth in delinquencies moderated as a result of that “flight to safety,” and now some auto lenders are returning in a limited way to the subprime segment, Landau said.
U.S. household finances are generally in good shape on average, in part because of the rebound in housing, he said. “We are starting to see an increase in equity per household. It’s a good balance between LTV and equity,” Landau said. LTV is loan-to-value, the ratio between the size of a loan and the value of the underlying asset.
“The growth in equity is certainly helping consumers with regard to their confidence in their own ability to make good on loans,” Landau said. “We would imagine many consumers would tap into that built-up equity.”
Source: Forbes / Contributor Jim Henry
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