The national auto loan delinquency rate (the ratio of borrowers 60 or more days past due) is down for the second straight quarter and hit its lowest level since TransUnion began tracking the data in 1999.
Auto loan delinquency rates for the second quarter ended June 30 dropped to 0.33%, down from 0.36% in the first quarter, according to TransUnion's analysis of credit-active consumers and how they are managing credit related to mortgages, credit cards and auto loans. On a year-over-year basis, auto loan delinquencies declined 25% from 0.44% in the second quarter last year.
“It’s not surprising that auto loan delinquencies remain at record low levels,” says Peter Turek, automotive vice president inTransUnion’s financial services business unit. “A recent TransUnion study found that consumers now value their auto loans more than their credit cards and mortgages. This is partly due to the need for transportation to get to work or to seek employment in a difficult job market. Additionally, consumers with car loans have more equity in their vehicle than they have in the recent past because of the strong used car vehicle market. Consumers want to keep their auto loan relationships in good standing.”
Along with increased demand in new and used autos, bank auto debt per borrower has risen nearly 6% from $12,689 in the second quarter a year ago to $13,427 in this year's second quarter. Despite growing bank auto debt, the majority of states and cities are experiencing declines in their auto loan delinquency rates.
Thirty-seven states experienced declines in their auto delinquency rates in the second quarter compared to the first quarter. On a more granular level, 58% of metropolitan areas saw decreases in their auto delinquency rates in the second quarter, down from the prior period where 66% of Metropolitan Statistical Areas saw decreases.
“It’s impressive to see auto loan delinquencies remain so low despite a growing proportion of new loans going to non-prime consumers,” says Turek.
On a year-over-year basis, the percentage of new auto loans to non-prime borrowers (with a VantageScore credit score lower than 700 on a scale of 501-990) increased by 9% in the second quarter. In the last two years (between Q2 2010 and Q2 2012), the percentage of new auto loans to non-prime borrowers has increased more than 20%.
“With the increase in non-prime borrowing, we do anticipate that auto loan delinquencies will begin to increase,” says Turek. “We are at such a low auto loan delinquency level – far from normal standards – that a slight rise through the end of the year should be expected, though the overall rate will likely remain relatively low."
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.