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Delinquencies surpass pre-pandemic levels
60-day delinquency rate increased to 0.87% in Q4
The rate of auto loans 60-plus days delinquent in the fourth quarter rose above pre-pandemic levels for the first time as monthly payments continue to climb.
The rate of loans 60-plus days past due increased 21 basis points year over year to 0.87% in Q4 2022, accounting for 0.99% of all loan balances, according to Experian’s state of the automotive finance market Q4 report. The rate of 60-day delinquencies on new-vehicle loans came in at 0.49%, while the used-vehicle delinquency rate tallied 1.23%.
Loans 30-plus days delinquent increased 45 bps YoY to 2.31%, accounting for 2.73% of loan balances, according to the report.
High monthly payments behind delinquencies
The rise in delinquencies in Q4 is a result of increasing monthly payments over the past year, Melinda Zabritski, senior director of automotive financial solutions at Experian, told Auto Finance News.
“Most delinquencies you tend to see are going to occur 18 to 22 months into the life cycle of a loan, some a bit earlier,” Zabritski said. “If you go back and look at when we started to have the monthly payments grow as much as they’ve been, it was right around 12 to 18 months. It really goes hand in hand with the increase in the monthly payments that we started seeing over the past year and a half.”
The average monthly payment on a used vehicle climbed to $526 in Q4, an increase of 7.4% YoY, while the average monthly payment on new vehicles jumped 10.8% YoY to $716, according to the report.
“Previously, when you have the increased monthly payments, it’d be $5 to $10,” Zabritski said. “Now we’re talking about $100 increases.”
Delinquencies are expected to continue to tick up slightly on a YoY basis as long as monthly payments stay elevated, she said, noting there could be a slight drop in delinquencies from Q4 to Q1 2023 if some consumers get relief due to tax refunds.
“Lenders do so much analysis and economic forecasting and planning and structure around their originations and their portfolio, you tend not to see any [increases] that are overly dramatic unless there are outside economic factors that come into play,” Zabritski said.
Auto Finance Summit East, Auto Finance News’ new spring event, is set for May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.
