Coronavirus Could Cause Problems For Auto Loan Borrowers In The US, Especially If The Economy Slows Down
03 Mar 2020
Approx Reading time: 3 minutes
- A potential slowdown in the US economy could cause greater unemployment, leading many people to fall behind on their car loans.
- Car loan delinquencies are already at record levels, indicating that borrowers with low incomes are increasingly finding it difficult to make repayments on their car loans.
- However, experts believe the impact of increasing auto loan delinquencies would not be as severe as the housing crisis of the late 2000s.
The US economy may slow down due to the ongoing coronavirus, just like many other economies
around the world. However, in the US, this could be particularly problematic for the increasing number of car loan borrowers who are already behind on their payments. According to reported data, over 7 million people in the US were delinquent on their car loans for 90 days or more, a figure that is higher by 1 million compared to the one reported back in 2010 when the economy had freshly emerged from the financial crisis. As per data reported by the New York Fed in its quarterly household credit and debt report, in Q4 2019, debt pertaining to auto financing increased to $1.33 trillion, a quarterly increase of $16 billion. Out of these, 5% of the loans were in delinquency for 90 days or more, which is the highest percentage that has been reported since Q3 2011. Experts believe a slowdown in the US economy due to coronavirus could squeeze the profitability of many companies, and this could lead to unemployment. For many people, the absence of a regular income could cause havoc to their personal finances, especially in cases where people have outstanding debt balances. Defaulting on a loan repayment has repercussions. Those who are unable to make regular payments on their secured car loans could have their vehicle repossessed by the lender, in addition to having their credit score damaged. On average, Americans pay out $550 per month on a car loan for new cars, while a used car loan requires an average monthly repayment of around $393, and an average of $452 per month is being paid on leased vehicles. At this time, it is Generation X members who carry the highest average car loan balances on their shoulders, amounting to the median figure of $19,313. But car loans are only a small portion of the total household debt
in the country, making up just 10% of the total consumer debt. Around 68% of the debt is owed by Americans as mortgage loans. Hence, according to experts, an auto loan crisis would not cause havoc to the economy as the housing crises did back in the late 2000s. However, a slower economy would likely result in a higher number of delinquencies when it comes to auto loans. At this time, the total auto loan balance stands at over $1.2 trillion, driven high by cheaper borrowing rates and a strengthening labor market in recent years. However, the delinquencies recorded against auto loans are also at their highest level at this time, as an increasing number of borrowers with low incomes are facing difficulties making regular loan repayments.
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