Auto loan delinquencies rise as pandemic-era government assistance ends

With inflation and higher prices still a factor across the country, a growing number of Americans are struggling to make their monthly auto loan payments.

A new report from TransUnion on Tuesday found that 1.65% of loans in the third quarter were at least 60 days delinquent. That’s the highest rate for 60-day delinquencies in over a decade. Subprime borrowers, or those with lower credit scores and typically lower incomes, are struggling the most.

TransUnion tracks more than 81 million auto loans across the country.  

“Consumers still want to stay current as best they can,” said Satyan Merchant, senior vice president of TransUnion, to CNBC. “It’s just this inflationary environment is making it challenging.”

“It leaves fewer dollars in their pocket to make the auto loan payment because they’ve got to pay more for eggs and milk and other things,” said Merchant.

The rise in delinquencies coincides with the end of loan-accommodation programs that started during the COVID-19 pandemic. Those programs were intended to help out-of-work individuals avoid having a vehicle repossessed because they could not make the monthly payments.

TransUnion reports that approximately 200,000 loans that previously utilized those accommodations are now 60-days delinquent. The credit firm says around 100,000 loan accounts that are more than 60 days delinquent remain in pandemic-era programs.

“There has been this effect where the delinquency that may have occurred over the last few years is really just pushed out or delayed because that consumer didn’t have to make payments, or their status was on an accommodation. So now some of those are hitting,” said Merchant.

Merchant said the auto loan market remains healthy, despite the rising number of delinquencies and that low unemployment is helping right now. Higher interest rates and average transaction prices are leading many new borrowers to take longer-term, seven-year loans to help keep monthly payments lower.

“If we get into a position where employment starts to be a challenge in the United States and unemployment increases, that is when the industry will really start to be concerned about a consumer’s ability to pay their auto loans,” Merchant said.

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