Auto Loan Delinquencies On the Rise
The increase, however, is only seasonal and the rate remains very low, experts say.
The national auto loan delinquency rate (the ratio of borrowers 60 or more days past due) rose from 0.33% in the second quarter to 0.38% in the third quarter of 2012, according to TransUnion.
The increase is likely only a seasonal adjustment, however, the credit information and information management services provider reports.
"Since TransUnion began tracking the auto loan delinquency rate in 1999, we have observed a seasonal increase in this variable every year between the second and third quarters," says Peter Turek, automotive vice president in TransUnion's financial services business unit.
"This has occurred even with auto loan delinquencies dropping 56% since the recession high of 0.86% set in the fourth quarter of 2008. Seasonal factors include consumers balancing increased spending due to back to school needs and holiday purchases," he says.
While auto loan delinquency rates remain relatively low, bank auto debt per borrower continues to rise, increasing 5% from $12,902 in the third quarter of 2011 to $13,571 in the third quarter of 2012.
Between the second and third quarter of this year, 38 states experienced increases in their auto delinquency rates. However, on a year-over-year basis only seven states experienced increases in their auto delinquency rates.
On a more granular level, 54% of metropolitan areas saw increases in their auto delinquency rates in the third quarter. This is up from the prior period when 42% experienced increases.
Auto loan originations also continue to increase. Total new auto loan and lease originations in the second quarter grew by about 16% relative to the same period last year.
Auto loan originations are analyzed one quarter in arrears, to account for the reporting lag of new accounts.
The share of nonprime, higher-risk consumers (with a VantageScore® credit score lower than 700 on a scale of 501-990) was 32.8%. This is somewhat higher than one year ago (30.2% in Q2 2011), and is significantly higher than the 27.5% observed in the second quarter of 2010.
In terms of volume, the number of new accounts originated to nonprime consumers increased 25.6% in the second quarter of 2012 compared to the second quarter of 2011.
In addition, average balances for new auto loans increased by 2.4% in the second quarter of 2012 compared to the same period last year, from $17,829 to $18,258.
"With increased auto loan balances and more loans going to nonprime borrowers, it is plausible that some pressure may be placed on the auto loan delinquency rate," says Turek. "However, as the economy continues to improve and new and used auto demand maintains its current pace, we believe that the auto loan delinquency rate will either remain the same or even drop a few basis points by the end of the year."
TransUnion's forecast is based on various economic assumptions, such as unemployment rates, consumer sentiment, disposable income, and interest rates. The forecast changes as the economy deviates from a conservative forecast or if there are unanticipated shocks to the economy affecting recovery.