The percentage of auto accounts in financial hardship status fell to 6.16% in July, a decrease of 104 basis points from June and 88 bps from May, according to TransUnion’s quarterly industry insights report.
Although the number of auto accounts in financial hardship status remains elevated from July 2019 levels of 0.41%, the ratio is declining from peaks seen in May and June of this year that were largely due to reduced work hours, shelter-in-place orders and unemployment as a result of the pandemic.
Peaks seen in May and June are largely due to reduced work hours, shelter-in-place orders and unemployment as a result of the pandemic. For comparison, in July 2019 just 0.41% of auto accounts were in financial hardship status.
“Consumers have been holding up relatively well. In fact, we’re now starting to observe the number of consumers in hardship are beginning to decrease, which I think is a good sign,” Satyan Merchant, TransUnion’s senior vice president and automotive business leader, told Auto Finance News. However, he added, “I’m not sure I’m ready to declare that we are out of the woods yet on this pandemic.”
Accounts in financial hardship status have deferred payments, are in a forbearance program or are frozen or have a frozen past due payment, according to TransUnion. Such accounts are protected from going into delinquency, Merchant said.
Delinquency rates continue to decline on a monthly basis. Only 1.43% of auto account borrowers had payments 60 or more days past due as of July, a decrease of 7 bps from June but an increase of 12 bps from the same period in 2019. Deferral programs and government stimulus programs are helping struggling consumers, and borrowers, in turn, continue to make payments on their auto loans when possible, Merchant said.
“I think it’s a sign that the lending and borrowing community have worked together to help mitigate this problem of a global pandemic,” Merchant explained. “One thing we have learned in history is that consumers often have the auto payment at the top of their hierarchy. We’re not in typical times, but typically, a consumer needs their vehicle.”
As 90-day deferral programs end and lenders pull back to helping consumers on a case-by-case basis, it is not yet known if and by how much delinquency rates will rise or what accounts will look like once they leave financial hardship status, Merchant noted. As of late July, 57% of Americans have been financially impacted by the pandemic and 77% of consumers expressed concern for their ability to pay their loans, according to TransUnion’s Financial Hardship Survey from the week of July 29.
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