Subprime Auto Loan Delinquencies Hit 20-Year High

The percentage of Americans with unpaid subprime auto loans has reached a new high of 5 percent, surpassing rates seen at the height of the Great Recession in 2008. In fact, this is the highest rate of delinquent subprime car loans on record since 1996.

What’s behind this alarming statistic? Market experts point to years of lax auto loan standards, which have been good for economic growth – fueling a booming auto industry in recent years – but have sent American auto loan debt soaring to more than $1 trillion in 2015.

Interestingly, the overall health of the auto loan industry remains strong, with losses below historic averages in nearly every category besides subprime. This relative strength provides a cushion for lenders to continue making riskier loans to those with low credit scores or little FICO history.

Although the subprime auto market seems to be mirroring the troubling trend of the subprime mortgage lending market prior to the 2008 bust, economists are less worried about a burst of the “auto finance bubble.” Consumers who can’t pay their loans won’t be left homeless, as in the mortgage crisis, and most understand that vehicles lose value over time anyway, unlike an investment in property.

Additionally, states like North Dakota and Louisiana are skewing the data by far outpacing auto loan delinquency averages, as many former oil boom workers in those states remain unemployed after a slump in the oil market. Still, the spillover effect on the greater auto loan market could mean more stringent loan requirements in years to come.

Image via Flickr/archfastcar