USA Today, using data provided by Experian Automotive, reports that there has been a significant up-tick in people falling behind on their auto loan payments. Repossessions, which result from a total failure to pay on a car loan, rose by over 15% in the beginning of 2013 compared to the same time last year; the number of people falling at least two months behind on their payments has risen by nearly 13%.
These numbers are troubling for a variety of reasons, not the least of which is that many consumers are putting their credit scores in jeopardy by failing to pay on their auto loans in a timely fashion; repossession will result in a major ding on a person’s credit report and takes a long time to recover from. From a big-picture standpoint, it’s worrying that so many Americans are coming up short every month that they’re failing to pay their monthly obligations. Many economists and financial experts view this as a negative indicator of the overall health of the U.S. economy.
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While a rise in repossessions and late payments is concerning, Experian Automotive is quick to point out that rates are nowhere near the high they hit in 2010, one of the worst years of the Great Recession. Also worth mentioning is the relaxing of lending standards that has occurred since the economy has begun to bounce back from the brink. At the height of the downturn, when credit was extremely tight, obtaining a car loan was difficult and the number of loans granted dipped. Now that banks and dealerships are beginning to feel more comfortable lending to those with less than stellar credit, delinquencies are rising again. In other words, the rise in repossessions and late payments is at least partially attributable to bringing more borrowers into the fold, as opposed to being a result of long-time borrowers hitting the skids.
Do you think it’s concerning that auto loan defaults are rising?