Might the latest data on car loans – to be specific, delinquencies on those car loans – offer flashing warning signs on credit and the consumer in general?
As has been reported, there are more Americans who are at least three months delinquent on auto loans than has been seen across several decades – in fact, ever since the Federal Reserve Bank has been recording such data.
The tally now stands at more than seven million, a number that stands as the highest figure estimated by the Fed. Separately, and expressed as a percentage of total debt taken out, the delinquency is the highest seen in roughly seven years, and about one million more than had been seen in 2010.
The delinquency rate has seemingly been concentrated among borrowers with poor credit, as it stood at 8.2 percent for those with credit scores below 620 at the origination of the loan, up from 5.5 percent at the end of 2012. At the peak of the financial crisis, that percentage stood at 9.4 percent. For borrowers at origination who had subprime scores between 620-659, the latest reading was 2.9 percent, where the peak was 3.6 percent.
The deterioration among those with weaker credit stands in stark contrast to the upper echelons of debt holders as measured by credit scored – and where delinquency rates are only a few tens of basis points.
Much has been made about the more than $1 trillion in credit card debt that is held by U.S. consumers. But auto loans also have a place among the liabilities – and seemingly, increasingly heavy burdens – shouldered by households when it comes to vehicle loans, at $1.2 trillion.
Originations last year were $584 billion, up 2.6 percent from 2017. This, of course, signals an appetite for debt that has remained unabated, and an appetite by banks and other lenders to extend those loans.
“With growth in auto loan participation, there are now more subprime auto loan borrowers than ever, and thus a larger group of borrowers at high risk of delinquency,” the Fed said. All in all, 2.4 percent of auto loans are in “seriously” delinquent status, up from 1.5 percent in 2012.
All of this comes amid record-low unemployment numbers and rising wages, which seemingly are not enough for households to juggle and handle the debt loads they have taken on, and which can (and often does) extend across credit cards, car loans and student loans.
Vehicle prices and the cost of financing those vehicles has also been on the rise, as the average price has been roughly $36,000, up 3 percent from last year, according to the Kelly Blue Book, which outpaces wage growth.
If the employment picture is about as tight as it can be, inflation is set to rise (albeit slowly) – and the flashing signs indicate that this stage is as good as it gets (and it kind of doesn’t look all that good).