Debtor Nation Falls Behind

Want another reason car buyers aren’t racing to dealerships? Many buyers are having trouble paying the balance on the loans they already have. More and more borrowers are falling behind, according to Experian Automotive, which tracks auto loan performance. At the end of the second quarter, the number of borrowers who fell to 30 days past due rose 9% to 2.48% of all outstanding loans. That’s $20 billion worth of borrowing. The number of borrowers who fell 60 to 79 days behind rose 12% to .78% of all loans. That’s about $6 billion worth of loans that are at least 60 days late. So those buyers are out of the car market along with a few million others who owe more on the car than they could get on the trade in.

Since buyers are falling behind, lenders are tightening up their standards. There’s one fallacy. It’s not that car buyers can’t get a loan. Borrowers with sterling credit can get financing. It’s subprime—and even buyers in the lower echelons of prime—who are having trouble. Experian’s data shows that in June and July, loans with a credit score of 740 and above grew by 19%. Prime-credit borrowers have 680 credit scores and above. But there were 23% fewer loans written for those with credit scores below 740. So the banks are tightening up credit standards. But the biggest reason car sales are down: As I pointed out on this blog earlier, showroom traffic is way down. Consumers either have less disposable income or little faith that they keep the jobs they have.

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