In February, the number of seriously delinquent borrowers with sub-prime rates on their auto loans broke the five percent mark, Fitch Ratings reported. This marks the largest number of delinquent borrowers since 1996 and surpasses the highest levels reached during the recession. Despite the overall relative health of the economy, delinquencies continue to increase.
Fitch believes the cause of this is the same reason why auto sales have greatly increased in the past few months: the sudden increase in the number of auto loans made using fairly loose borrowing standards. These lax standards are often applied to sub-prime loans due to the fact that there are more competitors who make those types of loans and they are often extending credit to borrowers who have little to no credit.
In 2015, more Americans purchased new cars than they ever have, leading to the total amount of auto loan debt to reach and then surpass $1 trillion dollars.
Credit score tracking and reporting company TransUnion adds that the decline in oil prices may also be a contributing factor, especially considering the number of oil and gas industry employees who have been laid off. As more employees lose their jobs, they are unable to keep up with their loan payments. This is fairly easy to see when looking at a breakdown of where delinquent borrowers live. North Dakota, Oklahoma and Texas – states where the oil industry employs thousands – show huge spikes in loan delinquency.