Rise in late auto loan payments signals stress on low-income families

By Summer Ballentine The Detroit News The rise in late auto loan payments is a symptom of an increasingly unaffordable wagon area experts say Households with the lowest incomes are suffering the preponderance Related Articles Shoppers say tis the season for inflation an AP-NORC poll finds Editorial America demands more people who work with their hands Ooh that smell Pot cafes approved in Massachusetts Ticker Disney invests B in OpenAI Obamacare subsidy extensions rejected in Senate Auto loan debt is not yet at a problem point according to analysts But economists are closely following late payments as a probable indicator of wider economic stress and trouble for the U S auto industry which has become increasingly reliant on high-price high-profit pickups and SUVs According to a Nov note from the Federal Reserve Bank auto loan debt increased to levels not observed since the Great Financial Emergency GFC raising concerns about the healthcare of household balance sheets Late payments have been trending up since About of auto loans were past due as of the end of October according to the Federal Reserve Bank The rate of late payments has not been this high since in the lead-up to the Great Recession when delinquency rates peaked at in Repossessions hit an estimated in according to the latest available content from Experian and Cox Automotive Repos were at and greater in and Borrowers who make the least are the feeling the pressure of van affordability the majority Their pain is partly hidden by robust spending by top earners who are propping up the auto industry and overall economic system Bankrate senior industry analyst Ted Rossman disclosed The subprime delinquency rate is about as high as it s been since the early s Rossman explained The one somewhat exception is that it authentically peaked in January so this year we saw the highest subprime delinquency rate in about years a little over years So in other words it s worse now than it was during the Great Recession and the dot com bust and COVID Rossman announced The car repossession rate is at the highest point since the Great Recession Borrowers on average are taking out loans of more than loans for new vehicles and to buy used according to Experian information through October Average monthly payments hit for new models and for used vehicles in that period We re talking really substantial prices here Rossman reported Especially for a two-car family that could be approaching what you re paying in rent or mortgage costs The Federal Reserve shared a spike in monthly auto payments between and which in turn contributed to higher auto delinquency rates Buyers who took out loans for used vehicles in and when truck prices peaked are likely under the the majority stress Cox Automotive Chief Economist Jonathan Smoke noted in an email While negative equity is common in the first two years of a loan the depth and duration of underwater loans from and is notable he stated The stress is likely majority of acute with buyers who were at the time near-prime borrowers who stretched financially to make a purchase and subsequently with the end of student-loan forbearance have fallen to a subprime credit tier With tariffs more advanced apparatus in vehicles and demand for larger more expensive SUVs and pickups in the United States there s little room for automakers to respond with lower prices mentioned Stephanie Brinley a principal automotive analyst at S P Global Mobility They re building vehicles to the lowest price point they can she announced If automakers made more affordable vehicles they would lose money on them Charity Motors general manager Todd Matthews estimated that requests for free or subsidized vehicles from the Detroit nonprofit went up over the past inadequate years We get maybe a dozen calls a day about someone wanting a free bicycle or a story that makes you cry Matthews explained A veteran a senior citizen a mother of five we get that all day every day It s heartbreaking to work here Not too a large number of people can afford an average car note of what a month he added What s driving high payments Increases in bicycle prices have slightly outpaced wage advance announced Melinda Zabritski head of automotive financial insights at Experian Automotive To combat high monthly payments more prime borrowers are entering the used realm she commented It also all comes down to availability If there s more availability on the new car side you re more likely to have manufacturer incentives Zabritski announced If there s low availability that s going to push up prices for both new and used And SUVs and pickups pricier than the sedans that used to rule the roads are increasingly popular and packed with hardware that costs more to make and repair Those are going to be higher price points so it just automatically drives the used-car sector into higher price points just because that s what s out there Zabritski mentioned Prices of food and other expenses are up too Higher interest rates hit new-home buyers harder than people with fixed mortgages One in five new car payments is or more a month Rossman announced About three-quarters are above a month This is really straining people s budgets and it s the car price and the associated loan or lease of lesson but it s also other related things To take the edge off high monthly payments more and more drivers are turning to older SUVs and pickups and increasing the lengths of their loans Zabritski stated Consumers tend to shop for vehicles based on monthly payment Zabritski commented in a declaration Although we re beginning to see interest rates slowly decline affordability remains top of mindfor multiple shoppers It s not surprising to see particular shoppers explore the idea of extending loanterms to secure a lower monthly payment Nearly of new wagon buyers have loan terms of to months according to Experian Used buyers have average loans of about months At the same time interest rates are higher than during the COVID- pandemic but have eased since June from an average of to in November while used-car rates have dipped from to according to edmunds com Zooming out The strain on lower-income households to make conveyance payments is not cratering the U S auto industry or broader business sector analysts noted Brinley explained unlike during the Great Recession there s no mortgage situation now and unemployment is still relatively low at in September according to the U S Bureau of Labor Statistics Unemployment is not the same situation it s pretty much full employment right now Brinley explained Wages are kind of coming up They re not coming up super fast but we re in a different ecosystem absolutely In the recession period we had people bail out and just not buy vehicles Zabritski stated it s a totally different region than it was back then She mentioned banks and lenders are planning better for delinquencies and also are not taking huge losses on repossessed vehicles because used vehicles are holding their value longer Rossman announced spending by top earners continues to insulate the broader commercial sector Consumer spending is really the engine that powers the financial sector About two-thirds of economic improvement is attributable to consumer spending And that consumer spending has been surprisingly strong and resilient this year he mentioned Specific of it is that people have to because things just absolutely cost more whether we re talking food housing curative care Just about everything Smoke reported for those struggling with high auto payments next year might be easier Looking ahead rate relief may come in early as the Fed is expected to cut rates further and consumers will begin to see the benefit from higher take-home pay and larger tax refunds he revealed This could improve loan performance and ease lender threat aversion www detroitnews com Visit at detroitnews com Distributed by Tribune Content Agency LLC