The national auto loan delinquency rate and auto loan debt are both expected to marginally increase, come the new year, according to the TransUnion’s annual auto loan forecast, released today.
TransUnion estimates that the delinquency rate – the ratio of borrowers 60 or more days past due – will be at 1.20% by the end of 2014, not far off the mark from the company’s original estimate of 1.19%, made in January. The rate is expected to rise to 1.27% by the end of 2015, according to TransUnion.
Since 2007, the auto loan delinquency rate has been as low as 0.86% in 2Q 2012, and as high as 1.59% in 4Q 2008.
Pete Turek, vice president in TransUnion’s financial services business unit, acknowledges in the forecast that the delinquency rate has risen slowly to a point where it is now above 2010 levels for the first time, but is still far below levels in 2008 and 2009 when delinquencies were more than 30 basis points higher.
Turek told Auto Finance News that one economic factor he does not believe will have a direct impact on the overall delinquency rate is lower gas prices in 2015. That’s because the benefit will be mostly to subprime borrows, a segment that has accounted for only about a 14% to 15% share of the auto loan market from 3Q 2012 through the third quarter of this year.
If a consumer is living paycheck to paycheck, Turek said, the extra money in his pocket from lower gas prices could enable subprime borrowers to pay down more debt, but that extra money is not likely to make a difference to a borrower in the prime space. Instead, factors like lower unemployment rates, housing values, and consumer sentiment are better indicators for 2015.
Auto loan debt per borrower will also rise for the 19th consecutive quarter since 1Q 2011, to $18,244 by the end of 2015.
TransUnion’s overall forecast is that the auto loan market will continue to perform well in 2015, with continued auto sales leading an increase in debt and more opportunity for growth in subprime, according to Turek.
“The auto loan market has been especially strong for lenders, as much of the growth observed in the last few years has come from prime or better risk tiers,” said Turek in the forecast. “There is room for growth in the subprime sector as evidenced by more competition. Prior to the recession the percent of subprime auto balances were nearly 5% higher than they are now.”