Car Owners Are Struggling With Their Auto Loans

A recent study by TransUnion indicates a potential trend in the auto loan market – delinquency rates are rising. Almost 3.5% of consumers with auto loans are in default.

An increase in delinquency rates may indicate that the household is struggling with debt, especially since paying off the car loan is a priority for many households. If you’re struggling to make any repayments, however, you should consider paying off your most expensive debt first — and for most people, that means credit cards.

  • Almost 3.5% of consumers with auto loans are in default.
  • People who may have defaulted on their car loans during the pandemic were able to meet them thanks to government support and incentive programs. Now they are backing down.
  • The total number of auto loans in the United States has decreased due to the increase in interest rates.
  • Although priority is important for expensive debt, usually credit card debt, car loans are secured against the car and may have repayments if no the payment.

Almost 3.5% of auto loans are delinquent

A recent TransUnion study found that, in Q2 2022, 3.34% of auto loans were more than 30 days delinquent, and 1.43% were more than 60 days late in payments. . This is the highest rate in five years, and there has been a significant increase in the past two years.

TransUnion offered several reasons for this increase. First, they note that there may be a reversal of the deficit caused by the epidemic. Many people who would have defaulted on their car loan payments during the pandemic were not due to government assistance, stimulus programs, or car loan providers providing temporary assistance to the their customers.

Second, although the number of subprime loans is around five years, the number of car loans has decreased since 2018. Part of the reason for this is that supply shortages during and immediately after the pandemic, which means many customers are in trouble. even finding a car as a source of income. It also has to do with the rising cost of new cars – the average price of a new, high-end car is over $48,000.

Car loans are also more expensive due to higher interest rates. Last month, the car loan rate of all types of loans increased by 2.8 percentage points to 10.6%. People with low incomes are likely to be hit the hardest by these price increases. In October, the lowest-performing borrowers, with a score as low as 580, saw an average of 18.2% on new loans and 21.8% on used loans.

In short: it seems that many people who would have fallen on auto loans during the pandemic, but were kept on by paying incentives, are doing so now. At the same time, the number of car loans is decreasing. These two factors together mean that delinquency rates are at an all-time high.

Should I prioritize my car loan?

The TransUnion survey also revealed some interesting data about how consumers prioritize their payments. The survey found that most people consider paying their monthly car loan to be one of their biggest financial commitments – just behind paying off their debt, and having much more valuable than credit card repayments.

And, it makes sense. A car loan deals with a tangible asset – a car – that you already use. In addition, the increase in car prices last year means that many people are in good credit: that is, their car is worth more than the loan they took out to buy it. These two factors explain why paying off a car loan is considered a priority for many households.

Consumers should be wary of prioritizing unsecured debt over their loans. If you’re having trouble staying current on your car loan, your lender may be able to default on your payments, so you should approach them before you default. -money. If you don’t pay, your lender may impose penalties, and eventually repossess the vehicle if the loan defaults.

As with any type of debt, falling behind on your payments can have a negative impact on your rate, so it’s important to budget properly to meet your loan obligations.

Source

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