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Auto-Loan Delinquencies Inch Up, Prodded by Subprime Loans

People with less-than-perfect credit are receiving auto loans more easily than in the past few years, a situation propelling the rise in auto-loan delinquency rate.

The rate of U.S. auto-loans that are 60 days or more past due slightly increased to 0.88 percent in the first quarter of 2013 from 0.82 percent in the same period in 2012, showed the latest TransUnion Industry Insights Report.

The delinquency rate among subprime borrowers significantly increased from 5.09 percent to 5.50 percent, the “primary driver of the increase” in the national auto-loan delinquency rate according to the credit bureau.

TransUnion Automotive Vice President Peter Turek said that they have been watching the trend in auto loans to see whether an increase in subprime lending would spur delinquency rates on.


However, the percentage of subprime borrowers in Q1 2013 remained the same as in Q1 2012. Subprime borrowers still made up 15 percent of the total auto loan accounts this year.

“We found that while subprime borrowers are receiving more auto loans, the percentage of these loans to all auto loans made remains the same as last year so there has not been a dramatic effect to the overall delinquency rate,” Turek said.

On the contrary, auto loan balances grew by more than 6 percent from $11,266 to $12,006. The average loan balance increased by only 4 percent despite continuous growth for eight consecutive quarters. And the account balances in the subprime category rose by more than 11 percent over the last two years.

Meanwhile, the volume of all auto loans originated increased by 6.1 percent from Q1 2012 to Q1 2013.

According to Turek, borrowers are more likely to miss or be late on their payments as lenders give out more financing opportunities to people with less-than-ideal credit.

“On one hand, subprime borrowers make up a smaller percentage of the overall market and their delinquency rates are actually the same as they were two years ago. However, their account balances have risen more than $1,200 in that same period placing more of an economic burden on lenders if they were to go delinquent,” said Turek.

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