Trouble could be brewing in the key auto finance sector in the coming months amid the economic fallout from the coronavirusdespite a drop in delinquency rates on loans in the United States in the first quarter, a new report from the credit agency Experian find.
30- and 60-day delinquencies on auto loans fell in the first quarter, to 1.93% and 0.67% respectively, according to Experian’s latest Auto Finance Market Report.
The figures were supported by a fairly strong economy until the last two weeks of the first quarter in mid-March, when the coronavirus lockdown measures have taken hold across the United States, the report notes.
Billions of government aid in the form of stimulus checks and other assistance programs, Melinda Zabritski, senior director of automotive financial solutions at Experian, noted in a news release about the report.
The warning signs come as consumers in the first 10 weeks of the first quarter took on record levels of debt to pay for new and used cars.
The average monthly payment reached a record high of $569 for new cars and $397 for used cars, on average total loan amounts of $33,739 and $20,723, respectively.
“Some consumers are likely taking advantage of financial resources and assistance programs, such as stimulus checks, to manage financial hardship, so its true impact may not be apparent for months to come,” Zabritski said. .
Meanwhile, vehicle title changes, which provide an early readout of sales activity, plunged in April, the first month of the second quarter, Experian found.
Title changes on new vehicles fell by just over half in April, while title changes on used vehicles fell 54%.
Looking ahead, Experian also foresees continued growth in the number of borrowers with prime credit ratings. car loans. The trend, which has been driven by affordability concerns amid rising costs for new and used vehicles, is set to intensify amid the economic fallout from the coronavirus, the researchers said.
“As consumers continue to manage the financial impact of COVID-19, they can consider all of the options available to them,†Zabritski said.
