Late car payments drive rise in fixed-loan delinquencies

The prices of fresh and used cars keep rising every year, which means consumers are borrowing more to make the purchases — and the monthly payments for cars and car-related expenses are squeezing many households budgets to the maximum.

Fresh cars now cost an average $35,000, compared with an average $31,000 in 2013, according to Edmunds.com, an automobile industry information service based in Santa Monica, Calif.

The payments on a fresh car with a $31,000 outstanding loan are about $516 a month, even before insurance, gasoline and maintenance are factored in.

Meantime, used cars also have become pretty expensive in latest years. The average loan on a used car bought at a dealership is running about $21,000 and carries an average $380-a-month payment.

Pay more at dealer

“It’s no longer that effortless to pick up a used car for $Five,000 to $Ten,000 that’s in good condition. Those deals are getting tighter to find,” said Ivan Drury, a senior analyst at Edmunds.com. “People will most likely have to go to a dealer to buy a used car, and they will pay more.”

Some are having trouble keeping up with the payments.

The Washington-based American Bankers Association reported this month that delinquencies for immovable loans with immovable payment periods rose in the very first quarter, driven by an increase in late payments on auto loans.

Delinquencies in indirect auto loans — those arranged through third parties, such as auto dealers — rose to 1.83 percent, albeit they remain well below the 15-year average of Two.20 percent. Delinquencies in direct auto loans — those arranged directly through a bank — rose to 1.03 percent, also under the 15-year average of 1.57 percent.

“The gloss is fading a bit on auto lending as delinquencies rise,” said James Chessen, chief economist at the American Bankers Association. “Institutions will be more careful as they think about how aggressive they will be in lending, knowing there are early signs that some people are having difficulty paying back their loans.”

For a time during the 2007-09 recession, it was difficult to qualify for a fresh or used car loan. But as credit began to loosen up around 2013, banks and other lending institutions began passionately pushing auto loans, even subprime loans to meet trapped car-buying request.

Gus Faucher, chief economist at PNC Bank, Downtown, in Pittsburgh, said that while auto loan delinquency rates via the broad financial system have leaped, they remain low on a historical level and do not menace the economy.

“We have seen auto sales slow in 2017, and some of that is because lenders are pulling back,” Faucher said, adding that 17.Five million fresh cars were sold in 2016. This year’s fresh car sales are running at an annual rate of seventeen million.

While cars top the list of late payments, consumers also have overextended themselves on other loans, according to the American Bankers Association.

Delinquencies in bank credit cards rose to Two.74 percent but remain below their 15-year average of Three.65 percent. Home equity lines of credit delinquencies rose to 1.11 percent but also remain below their 15-year average of 1.Eighteen percent. Home equity loan delinquencies, on the other arm, decreased to Two.59 percent, holding under their 15-year average of Two.95 percent.

The American Bankers Association defines a delinquency as a late payment that is thirty days or more overdue.

Limit car expenses

Credit advisers at the nonprofit Advantage Credit Counseling Service in Pittsburgh suggest that consumers hold their car expenses to inbetween ten percent and twenty percent of their income. That includes payments, auto repairs and insurance.

Heather Murray, manager of education at Advantage Credit Counseling, said the agency records data on unsecured debt, such as credit cards, but does not maintain data on secured loans, such as car notes and mortgages.

Still, people with credit card debt often fight with car loans and mortgages, too.

“We’ve run into consumers in class with upside-down car loans, where the value of the car is worth less than what the car is costing them,” Murray said. “It’s often due to higher interest. These consumers are a higher credit risk. They go to places like mom-and-pop car lots that will take a higher-risk customer.

“But they end up buying lower-quality cars at a higher price, and oftentimes the loan outlasts the car,” she said. “Usually, if you are in that situation where that’s the only option for a car loan, there are other credit issues to deal with.”

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