If you are having trouble making your auto loan payments, recent data from the New York Federal Reserve suggests that you are not alone. According to the New York Fed, delinquent auto loans have reached levels not seen in over eight years.
Auto loan delinquencies of greater than thirty days or more reached $23.27 billion, the highest value since the $23.46 billion registered in Q3 2008. The seriously delinquent fraction of these loans, defined as those at least ninety days past due, reached $8.24 billion.
As bad as that sounds, the delinquency level is only at 3.8% – a fraction of the $1.16 trillion in total outstanding auto loans. Higher delinquency rates may just be an artifact of overall improvement in the auto industry. The Fed report noted that $142 billion in auto loans were generated in the final quarter of 2016, pushing 2016 totals to the greatest number in the entire eighteen-year history of the Fed's data collection.
Are there parallels to the housing crisis? There are some, especially with effect to the delinquency rate and risk levels. In their previous report, the New York Fed raised concerns about the rising delinquency rate among subprime borrowers with relatively low credit scores, creating a crude parallel to housing. As with housing, extension of credit to borrowers at higher risk simply means that higher levels of defaults and repossessions are likely.
The Fed data does show an increase in seriously delinquent auto loans, from 3.6% to 3.8% over the course of the fourth quarter, but in the broader view, these rates are not out of line, nor do they appear to be driven by increasing subprime loans. Fed data breaks down the overall auto loan originations by credit score range, and that data shows the dollar value of originations with credit scores below 620 has been shrinking steadily over the last two quarters. These originations fell from approximately $30 billion in the second quarter of 2016 to approximately $25 billion by the fourth quarter. To check your credit score and read your credit report for free within minutes, check out Credit Manager by MoneyTips.
Even if there were signs that auto loans are in a bubble comparable to the housing crisis, the relatively small size of the auto loan market is not large enough to cause the snowball effect that led to the Great Recession. Consider overall household debt instead, which is also nearing a 2008 peak value.
Debt from all household categories (mortgages, student loans, credit card debt, home equity loans, and auto loans) reached $12.58 trillion, approaching the peak value of $12.68 trillion in 2008. Auto loans comprise only 9% of that debt total, a relatively constant percentage in recent years. The greater potential bubble may be in student loan debt, which is at $1.31 trillion but also carrying an 11.2% rate of serious delinquency – and the real delinquency rate may be twice that amount because of the number of loans in deferment, grace periods, or forbearance.
You are probably not interested in whether or not you have company in delinquent auto loan payments or whether overall auto debt threatens the American economy; you are likely more interested in how to get out of your own auto loan debt to avoid threats to your household economy. Delinquent auto loan payments will certainly hurt your credit score, making it even more difficult to climb out of your debt burden.
Unfortunately, there is no easy answer. Getting out of auto loan debt, just like any debt, requires budgeting, cutting unnecessary expenses, and increasing income wherever possible. If you still cannot make ends meet, you may have to consider how to get by without a car – because repossession becomes a possibility.
If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.