Car buyers who borrowed money to finance their purchase are seeing higher loan debt per borrower rates, along with higher delinquency rates. And it’s happening on both sides of the border.
Let’s start with Canada. Automotive News picked up a report from TransUnion showing that average auto-loan debt per borrower has gone up in the second quarter, and so too have delinquency rates. This is happening as vehicle prices have also risen during the same time period. Consumers are also rolling in other debt and parts of the country are still in recovery mode from the recent economic crisis.
To be precise, the report says the average balance per borrower on car loans is $20,477, an increase of 2.4 percent over last year. A Canadian TransUnion analyst told AN that rising vehicle prices and the rolling over of negative equity were key reasons.
60-day delinquency rates rose slightly, as did 90-day rates. TransUnion Canada blames the decline in the oil industry in parts of the country as a cause of the problem. Alberta and Saskatchewan are especially struggling.
There was also a shift in loan originations away from subprime towards prime, prime-plus, and superprime categories. It’s unclear if this is because lenders are exercising more caution, or if subprime borrowers are spending their income on other items due to economic struggles.
This follows reports from earlier this summer of a booming market for subprime auto loans in the United States. A Bloomberg piece from July includes a chart showing 90-day delinquencies jumping to almost 4 percent in the first quarter, which appears to be a post-financial-crisis high. The article then delves deep into the regulatory scrutiny that lender Santander has been under.
There was a rise in lending for new cars last year, and now we’re seeing a rise in average new vehicle transaction prices (in Canada and the U.S.) and laxer lending standards from Wall St. when it comes to subprime auto loans. Subprime auto loans may be less risky in terms of economic crisis than subprime mortgages, but that doesn’t mean these numbers aren’t worth keeping an eye on.