A new report from the Federal Reserve Bank of New York is raising alarm bells among economists. The report shows seven million Americans are 90 days delinquent or more on their auto loan, the highest number since the Great Recession in 2010. The findings are “surprising during a strong economy and labor market,” according to the report.
However, auto-loan delinquencies aren’t affecting everyone equally. According to the report, people under the age of 30 and those with credit scores below 620—subprime—are seeing the highest percentage of auto-loan delinquencies of at least 90 days. Eight percent of 90-day-plus auto-loan delinquencies are held by borrowed with a subprime auto loan. People under the age of 30 own four percent of such delinquencies.
The increase in auto-loan delinquencies is due to overall growth in auto loan participation with more subprime borrowers than ever securing car loans. Many of these subprime loans are originating at auto finance companies—companies that specialize in loaning money often specializing in subprime lending—compared to loans from banks and credits unions. Auto finance companies include GM Financial owned by General Motors, Ford Credit, and others owned by automakers. However, there are plenty of private auto finance companies separate from automakers like small dealership institutions with their own finance department and independent financial institutions.
But this still doesn’t tell the whole story. Digging down deeper into the data, the Federal Reserve Bank of New York separated auto finance companies from similar lending companies owned by automakers. According to the report, 50 percent of the loans issued by auto finance companies are delinquent compared to just 19 percent of loans issued by automaker-associated lending companies.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector,” the report concludes.
This comes as new car prices continue to rise, monthly payments increase, and interest rates tick upward. Last year marked the highest level of new loans and leases appearing on credit reports, hitting $584 billion. In 2017, loans and leases accounted for $569 billion in new debt.
Comments
What the heck do you expect. Most loans are subprime.
I have been commenting for years stating that lots of millennials do not work, want to work, or are working. And this story only confirms my assertion.
“I have been commenting for years stating that lots of millennials do not work, want to work, or are working. And this story only confirms my assertion.”
Your description also applies just as well for every other generation, including your own. There’s always going to be those willing to work, those who do work, and the spongers.
I agree with many overspend.
That said I believe new car prices are getting ridiculous.
25% of the US population on food stamps
70,000 deaths from opioids in 2018
the rich are laughing at the poor and middle class
What a great economy. Time for a revolution?
I agree with you here. The Wealth Inequality is only getting bigger. The lower class is growing, the middle Class is shrinking, and the upper class is becoming too large. More people are employed only because they have to have 2-3 jobs to make ends meet. No one should have to work 2-3 jobs just to pay rent. Corporate tax rates are at 15% and was expected to increase employee morale, by companies benefiting from those tax cuts, to spend it on employee benefits. That didn’t happen! Companies bought back their own shares on Wall Street instead. Tax companies at 30%+, Tax the Wealthy 10m/YR+ at 70% at their 10 millionth and ONE dollar! The United States is the only developed country that doesn’t offer Universal healthcare, and free tuition for students. I could go on…
Universal healthcare isn’t free. It has advantages, but it is not free. My Federal tax in Canada will be mid 40% this year. Most Canadians don’t start “working for themselves” until mid-summer. We don’t have free tuition either. That being said, I wouldn’t want to live anywhere else in the world.
Not even remotely surprising to anyone who is paying attention and knows how to actually read and decipher the numbers in various economic reports (i.e. not the media).
A) The economy is nowhere near as strong as CNBC would like to believe.
B) Taking on absurd levels of debt to buy/lease a new car every few years doesn’t make one rich.
C) Most subprime notes are being given to people too stupid to understand that they’re subprime for a reason and ought to work at remedying the situation before over-extending themselves yet again.
My father had a saying, “if you can’t buy it cash, you can’t afford it”. We never had any money issues in our family. When money was needed, it was always there. I thought that was old school and I used credit aggressively in the past but have now gone to full cash. I sleep much better at night and I’m proving that this, in time, really pays off.
Thought I would share this…