6.3 mil­lion in U.S. late on car loan pay­ments

Houston Chronicle - - BUSINESS - By Heather Long

A ris­ing num­ber of Amer­i­cans are un­able to make the monthly pay­ments on their car or truck loans and are in dan­ger of hav­ing their ve­hi­cles re­pos­sessed, ac­cord­ing to data re­leased Tues­day from the New York Fed­eral Re­serve.

There are 6.3 mil­lion Amer­i­cans who are 90 days late — or more — on their auto loan pay­ments, an in­crease of about 400,000 from a year ago. When some­one gets so far be­hind on their pay­ments, they typ­i­cally end up los­ing their ve­hi­cle.

The delin­quency rate on au­tos has been steadily ris­ing since 2011, a red flag at a time when the un­em­ploy­ment rate has been fall­ing. The un­em­ploy­ment rate is now 4.1 per­cent, the low­est level since 2000. As more and more Amer­i­cans get jobs and in­come com­ing in, it should be easier for them to pay their bills. But the rise in auto loan delin­quen­cies is a re­minder that mil­lions are still strug­gling to make ends meet.

Many of the peo­ple who can’t pay their car loans have bad credit scores of un­der 620 on an 800-point scale. They don’t have many op­tions to get money to buy a new or used car and of­ten end up get­ting a sub­prime auto loan that comes with an in­ter­est rate of 15 to 20 per­cent.

The Fed no­ticed a big dif­fer­ence be­tween how peo­ple who get their auto loans from banks or credit unions vs. those who get loans from “auto fi­nance lenders,” such as a “Buy Here, Pay Here” firm. Among auto fi­nance com­pa­nies, 9.7 per­cent of their sub­prime loans are late by 90 days or more, not far from the delin­quency rate dur­ing the worst days of the Great Re­ces­sion. In con­trast, banks and credit unions only have 4 per­cent of their sub­prime loans in delin­quency.

“Delin­quency rates among auto fi­nance lenders are con­sid­er­ably higher and ris­ing, es­pe­cially for sub­prime bor­row­ers, in part re­flect­ing dif­fer­ences in un­der­writ­ing stan­dards,” said Wil­bert van der Klaauw, vice pres­i­dent at the New York Fed.

Some have started to com­pare what’s hap­pen­ing in the auto loan mar­ket to the home mort­gage cri­sis that helped trig­ger the fi­nan­cial cri­sis of 2008-09. Many of the same is­sues are back: Lenders ap­pear to have low­ered their stan­dards to give peo­ple car loans who prob­a­bly should not qual­ify. A man in Alabama was able to use his shot­gun to cover most of the down pay­ment.

Strin­gent reg­u­la­tions put in place af­ter the cri­sis have made it harder to get a home mort­gage, but most of the rules don’t ap­ply to auto fi­nance com­pa­nies.

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