Despite lenders south of the border easing credit restrictions and offering more non-prime and subprime financing, the actual delinquency rate on vehicle contracts continues to fall. According to TransUnion, one of the largest three monitors of auto lending in the U.S., the 60-day delinquency rate is expected to reach a near record low of 0.36 per cent by the end of the year, down from 0.86 per cent in 2008.
Consumers that are more than 60 days overdue on loan payments are deemed to be delinquent, with a greater risk of having their vehicles repossessed.
In recent years, automakers have been extending financing contracts up to 72, 84 and even 96 months in an effort to woo buyers. This has led to an increase in vehicle sales (up by 13.5 per cent in the U.S. this year), part of the reason why 2012 is on track to be a near record for demand. Nevertheless, despite this and lower delinquency rates, there has been a growing number of consumers that are underwater in terms of financing, i.e. trading in vehicles in which they owe more than what the car or truck is worth.
However, even given these factors and the growth in non-prime and subprime auto lending, Peter Turek, vice president of TransUnion’s automotive finance arm, believes the auto industry has learned the lessons of the past and that today lenders are “putting consumers in the right vehicle with the right loan terms.”
Lacey Plache, an analyst with Edmunds.com, says that after restrictive lending terms introduced following the Great Recession, in which even people with good credit scores found difficulty obtaining car loans, the market is simply correcting itself.
Although Plache says that still less than half of the 1.8 million people in the U.S. who couldn’t get auto loans in 2008-09 have returned to the market, she believes lenders are “unlikely to pull back at this stage.”
