Delinquency rates are expected to start normalizing in the next 18 to 20 months as high vehicle values and record-low subprime volumes in the third quarter begin to affect the overall market.
Heightened vehicle values and costly monthly payments are expected to disrupt low delinquencies during the next two years, Melinda Zabritski, senior director of automotive financial solutions at credit reporting agency Experian, told Auto Finance News. “Right now what’s really been helping has been that reduction in overall consumer spending,” she said. Robust government stimulus has also been credited with strong credit performance.
Loan delinquencies remain steadily low in Q3, clocking in at 1.6%, up slightly from 1.5% a year ago and up from 1.2% in Q2, according to Experian’s recent Q3 State of the Automotive Finance Market report.
Elevated prices have yet to affect delinquencies because the impact doesn’t reveal itself until after the transaction has had time to age, Zabritski said. “If a loan is going to default, you typically see that peak around 18 to 20 months,” she said.
Average used-vehicle values in Q3 jumped 31% year over year to $26,591 while the average monthly payment for a used vehicle increased 16% YoY to $465, according to Experian’s report. The amount financed on used vehicles also increased 20% YoY to $25,909.
New-vehicle values also increased, but not as drastically. Values inched up 4% YoY to $36,384, according to the report, and the average monthly payment for new vehicles rose 8% to $609.
Although consumers have stayed on top of their payments, the market is approaching the time when defaults could start popping up, Zabritski said. “It’ll be a little bit of time before we see the impact on delinquencies from today’s market,” she added.