Auto Loan Delinquencies Up on Record-High Monthly Payments

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The best-selling light vehicles in the United States are pickup trucks, followed closely by sport utility vehicles. Automakers spotted the trend years ago and have raised prices on these popular vehicles as demand for passenger cars wanes.

Higher prices inevitably mean higher monthly payments for vehicle buyers and that, in turn, pushes up delinquencies on auto loans. According to the latest report from credit reporting agency Experian, in the fourth quarter of last year, auto loans and leases more than 60 days past due rose year over year from 0.76% of all loans to 0.78%. That sums to 700,000 loans and leases out of 89.1 million that are open. Including loans and leases that are 30 days past due, buyers are not making timely payments on 2.76 million loans.

The average monthly payment rose by $30 year over year to $545, a record high, and the average interest rate on auto loans for new cars rose above 6% for the first time in 10 years. Compared to the average interest in the fourth quarter of 2017, rates were up more than 1% last quarter. For used vehicles, interest rates averaged 9.59%, a jump of 0.75% year over year.

Higher interest rates compounded the rise in new vehicle loans, which rose by an average of $623 year over year to $31,722. The average used vehicle loan rose to $20,077, up by $488 year over year, a new high.

Experian’s Melinda Zabritski commented:

With more car shoppers using automotive financing options, it’s natural to see an uptick in the volume of delinquent loans. Lenders need to factor in additional historical trends, such as the percentage of subprime loan originations and shifting payment options, to gain a more complete picture and make the right lending decisions.

Experian included a comparison of loan and lease monthly payments for the top 10 leased vehicles. Here they are, along with the monthly loan and lease payments and the vehicle’s market share.

Model Loan Payment Lease Payment Market Share
Chevy Equinox $445 $304 3.80%
Toyota RAV4 $459 $346 3.20%
Honda Civic $420 $314 2.90%
Jeep Grand Cherokee $604 $463 2.50%
Nissan Rogue $465 $346 2.40%
Ram 1500 $650 $441 2.40%
Ford F-150 $652 $450 2.30%
Honda Accord $485 $376 2.30%
Jeep Cherokee $492 $357 1.90%
Ford Escape $434 $329 1.90%

 

Both passenger cars on the list are made by Honda, and only Jeep and Ford place two vehicles among the top 10. According to Experian, the average savings per month on a lease is $138.

The total U.S. auto loan balance is $1.18 billion, up 4.4% compared with a balance of $1.13 billion at the end of the fourth quarter of 2017. Bank lending accounts for $368.2 billion of the 2018 total, while credit union loans account for $346.3 billion. Captive (dealer) financing totals $262.1 billion, and finance companies have lent out $201.7 billion.

Loans to so-called deep subprime (credit scores of 300 to 500) borrowers account for 3.83% of the total loan balance outstanding, up about 6% year over year. Subprime (credit scores of 501 to 600) borrowers hold just under 16% of the outstanding balance, up 2.75% from 2017. Prime (661 to 780 credit scores) and super prime (781 to 850 credit scores) borrowers hold 42.2% and 19.6%, respectively, of the outstanding total balance.

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