Delinquencies and car repossessions are up across the nation, and credit experts are blaming the trend in sub-prime lending. Fortune Magazine reported in September 2014 that Americans can expect delinquencies to continue to rise in the coming months. The article cited findings by Experian Automotive, which recorded a seven-percent hike during the first quarter in the 60-day delinquency rate over the same period last year. Repossessions of vehicles bought through car loans went up by 70 percent since last year, Experian said. Of the total number of states, 47 recorded increases in delinquencies on auto financing per capita.
While the total numbers are relatively small, Experian's senior director of automotive finance told Fortune that the delinquencies may be fueled by the increase of sub-prime loans to borrowers who are traditionally denied financing because of their poor credit history. Spotty history, the director said, spotty repayment.
The Experian survey found a total $839.1 billion in outstanding auto loans balances for the first quarter 2014, the highest in history. The increase was nearly 12 percent over QT1 for 2013.
According to the Experian study, credit unions fared the worst among lenders when it came to 30-day and 60-day delinquencies on auto loans. Delinquencies were up 4.7 percent over the year, compared with the aggregate increase of .20 percent. Finance companies also saw relative high spikes of 2.6 percent. Only banks experienced a decrease -- down by 4.7% for the year.
States with Most Auto Financing Delinquencies
Mississippi, with a 1.09 percent rate, led the nation in 60-day delinquencies. Five other southern states make the top of the list. The lowest 60-day delinquency rate was recorded in New Hampshire at .42 percent.
The Federal Reserve Bank of New York conducted a study surveying the increase in car loan delinquencies in all the states from 1999 through 2012. States with the highest total percentage of increases in delinquencies on auto loans included Nevada, 4.36 percent, Arizona, 4.46 percent, and Florida, 3.82 percent.
Kentucky, Nebraska, North Dakota and Puerto Rico all saw lower per capita increases in delinquencies over the 13-year period of the survey.
According to Automotive News, the increases in delinquencies have been moderated by the uptick of jobs, lower interest rates, increased price tags on used cars, and an overall diminishing of household debt. While some experts believe the interest rates in car loans will increase to stem the rise in delinquencies, no one expects it to happen soon.
How to Avoid Delinquency on Auto Financing
Obviously the best way to avert delinquency on auto financing or repossession of a vehicle is for car buyers to make a stone-cold honest appraisal of their budgets and potential financial challenges. Many would-be borrowers neglect to assess repairs, insurance costs, and routine maintenance charges on a truck or car. When it comes to insurance, a driving record is as equally important to a driver as a credit history is to a lender.
If you do get a sub-prime auto loan, make sure you can handle the payments. It can be a boon to secure payment protection coverage if it's offered. In worst-case scenarios over the term of the car loans, consumers may have the opportunity to refinance the vehicle, lowering monthly payments.