Auto Debt Rises to Crippling Levels
NEW YORK ( MainStreet) Consumers are facing rising auto debt as those loan amounts increased for the eleventh straight quarter, TransUnion said in a recent report.
Auto loan debt rose by 4.4% from $16,060 in the fourth quarter of 2012 to $16,769 in the fourth quarter of 2013. On a quarterly basis, auto loan debt also increased from $16,685 in the third quarter of 2013, said TransUnion, the Chicago-based credit and information management company which gathered the data from virtually every credit-active consumer in the United States.
Borrowers have also fallen behind in paying for their auto loans, the report said. The auto loan delinquency rate or the ratio of borrowers 60 days or more delinquent on their auto loans increased to 1.14% in the fourth quarter of 2013, an increase of 1.04% from the third quarter of 2013 and a 1.09% rise in the fourth quarter of 2012.
The good news is that while consumers are behind on paying the loans for their vehicles, the delinquency rate remains below the fourth quarter average of 1.29% observed between 2007 and 2013.
"While we observed an uptick in auto loan delinquencies, there are reasons to believe they will continue to remain relatively low in the near future," said Pete Turek, vice president of automotive in TransUnion's financial services business unit. "First, while auto loan originations are increasing at a rapid pace, the percentage of non-prime accounts remains low. In fact, the percentage of non-prime borrowers for all auto loan accounts was lower in the fourth quarter 2013 than it was the previous year."
While auto loan debt has increased quarter over quarter, the decrease in auto loan delinquencies is a positive sign that consumer confidence is rising, said Ken Lin, founder and CEO of Credit Karma, a San Francisco-based financial management site which tracks consumers' debt and assets and compares it to others.
"This shows consumers are becoming more responsible with their finances and paying bills in a timely manner," he said. "Consumers across the country are taking out larger auto loans because they feel it is okay to make larger purchases and lenders are offering lower interest rates in addition to approving consumers with more modest credit ratings. All of this is a sign the economy is improving. More people are making larger purchases with new homes and vehicles nationally, which is often an indicator of recovery."
TransUnion recorded 60.5 million auto loan accounts as of the fourth quarter of 2013, up from 57.0 million in the fourth quarter of 2012.
Only 14 states experienced either a decline or had their auto loan delinquency rates remain flat between the fourth quarter of 2012 and the fourth quarter of 2013. The largest delinquency declines occurred in Oregon, New Jersey and Delaware. The largest increases occurred in Michigan, Alaska and Arkansas. Auto loan balances rose in every state between the fourth quarter of 2012 and the fourth quarter of 2013.