New, Used Auto Lenders Seeing Low Delinquency Rates

Auto delinquencies remain remarkably low, and on par with pre-COVID levels, despite the short but deep recession last year and lingering unemployment, according to the latest TransUnion Credit Industry Insight Report, for the second quarter of 2021.

“Overall, there’s really a continued rebound with regard to the primary indicators we look at: originations, balances, delinquencies,” says Matt Komos, vice president of research and consulting at TransUnion, the Chicago-based credit bureau.

“Consumer demand has gotten strong, even with rising vehicle prices, and shortages from the chip standpoint that affect the supply situation – and which drive up prices,” Komos says in an Aug. 17 phone interview.

According to the report, auto delinquencies of 60-plus days accounted for 1.23% of the amount outstanding as of the end of the second quarter. That’s an improvement over a delinquency rate of 1.51% a year ago, in the depths of coronavirus-related business shutdowns.

It’s also flat vs. 1.23% in the second quarter of 2019. “Credit performance continues to really shine,” Komos says. “We’re kind of back on par, from a pre-pandemic standpoint.” TransUnion auto credit statistics include new and used, loans and leases.

One possible note of caution is that TransUnion is keeping an eye on whether auto delinquencies increase when programs allowing borrowers to postpone auto loan payments because of the pandemic expire.

Auto lenders report millions of borrowers who took advantage of financial-hardship programs have already left those programs, with the vast majority keeping their payments up to date.

There are some borrowers with auto loans who are still postponing payments, but their numbers are expected to be relatively small, Komos says. “Even if they all went delinquent at once, it probably wouldn’t have that material (of) an effect,” he says.

Another potential problem is that some of the same borrowers have also been postponing mortgage payments, with lenders’ permission. There could be a knock-on effect on auto delinquencies if those same borrowers can’t make their auto loan payments once they resume making mortgage payments.

“We would expect to have seen some of those effects” on auto delinquencies, if they were going to happen, Komos says, but so far, so good.

Meanwhile, outstanding balances continue to grow, as consumers pay higher new- and used-vehicle prices, the report says. The average automotive debt per borrower was a record $20,466 in the second quarter. That’s an increase of $1,069, or 5.5%, vs. a year ago.

“We’re still seeing strong demand for new and used autos,” Komos says. “In some cases, the new auto might not be available, so many consumers have turned to used autos.”

Low supplies of new and used vehicles continue to be the biggest factor limiting auto sales, and therefore on auto finance, Komos says: “The biggest question mark, I think, is the supply chain aspect. That keeps driving prices up, which keeps driving up the loan amount.”

Relatively low interest rates and longer terms are somewhat offsetting higher monthly payments. If interest rates were to go up, the question becomes, “will that start affecting monthly payments for consumers?” Komos says. That’s something else to keep an eye on, he says.