US Auto Debt Delinquencies Rises With The Rise In Debt Rates

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Auto Debt Delinquencies

Ideally, the rate of auto delinquency is related to the debt rate which when high will significantly hit the loan delinquency rate. The high rate of interest of the loans will have a diverse effect on the debt and other allied aspects of it such as:

  • It will raise the cost of borrowing
  • The amount of monthly payment
  • The total amount of interest and of course 
  • The burden on the consumers. 

As a result, the consumers find it difficult to repay the loan and often look for relief from it in sites such as NationaldebtRelief.com. The effect of a high debt rate will surely affect the economy of a country even if it is as strong as that of America.

The debt scenario

In simple terms, you can consider yourself not alone out there if you live in America and are in debt. The Federal Reserve Bank has come up with their latest quarterly report that shows the amount and state of the US household debt. According to the report it is found that:

  • Americans together have about $13.54 trillion in debt
  • This amount has been steadily increasing for 18 successive quarters and 
  • It is 21% higher as compared to the $12.7 trillion debt of the Americans in 2008, the year when the Great Recession reached to its peak.

This is not all. The report of The Federal Reserve Bank also comes up with a few more significant and alarming facts that are now the primary concern for the Trump administration. It says that there are more than 7 million auto loan accounts in America that are at least 90 days, if not more behind their auto loan payments. 

Economists as well as industry experts say that this is surely a troubling fact that signals to a disastrous future of the auto loan industry, which is considered to be the most significant industry and source of revenue for any economy all over the world. Economists say that the Americans struggling to pay monthly bills in spite of living in a strong economy that is known for low unemployment should ring the alarm bells for the government. 

The statistical comparison

Why? This is because the delinquent auto debts that are at 90+ days due accounts for roughly 6.5% of all auto finance loans made. When auto loans debts are compared with all other types of loan debts, a report showed that:

  • It is only the student loan debt that edged higher than it at $1.46 trillion in the fourth quarter
  • The mortgage debt on the other hand accounted for the major part of the total debt standing at $9.12 trillion in the fourth quarter
  • The mortgage originations dropped from to $445 billion to $401 billion which is at the lowest level in nearly four years which is a result of the rising mortgage rates
  • The rate of 90+ days late delinquency in mortgage loans were roughly at 1.1%
  • The newly originated auto loans are $144 billion in keeping with its growing trend in nine years
  • The auto loan originations amounted to a total of $584 billion in 2018 which is ideally the highest amount documented in a 19 year period of collecting data
  • The Credit card balances on the other hand increases by $26 billion reaching up to $870 billion and 
  • Roughly 195,000 consumers had a bankruptcy note added to their credit reports.

All these have a significant effect on the overall economy and when you consider the auto loan segment, you will see that the Americans are typically less keen to boost their debt, especially in the last quarter of 2018. 

Comparing the Fed survey

According to the Fed survey, credit inquiries have hit a new low in the entire history of it. This is primarily due to the decline in the refinancing requests. This, economists say can be a good sign for the economy but it also points at the potential trouble for the consumers in their spending which in fact accounts for more than two-thirds of economic activity of US.

The experts pointed out to a few facts that the Fed report made sure. These are:

  • The overall level of auto loan credit quality has actually improved and must be taken note of
  • The less worthy borrowing has declined to 22% of the total share
  • About 30% is held by those as of now are on the higher end of the scale. 

In spite of all these promising facts, the economists still suggests the government to be extra cautious and concerned with the rise in delinquencies in auto loans sector.

They also say that the fact that there is a steady growth in the number of Americans who are distressed due to their borrowings suggests that the strong labor market has not benefited all the Americans.

As the New York Fed survey points out there are more than a million such troubled and distressed borrowers at the end of 2018 when the rate of unemployment was at 4% as compared to that of 2010 which was higher at 10%.

The inference

The rise in the auto loan defaults is unlikely to cripple the entire economy or the financial system. This is because mortgages will do the run-up during financial crisis. This is because the total market for auto loan is just over $1 trillion and that of housing is a staggering $12 trillion.

  • The auto loan originations have also reached to an all-time high in 2018 suggesting that the growth is primarily driven by the creditworthy individuals. 
  • The Center for Microeconomic Data shows the increasing quality of auto loans but also points out that the performance of this sector has been worsening slowly. This they say is the result of the growing delinquencies among the subprime borrowers.

On the whole, the younger borrowers are found to be struggling most acutely unable to afford an auto loans. And this will affect you as well.

Remember, when auto loan delinquencies rise it is considered to be a good sign that the entire economy is in financial distress.

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