Feds say auto loans went up in 2018–but so did the number of delinquencies

Car shoppers borrowed more in 2018 than before, but roughly 7 million owners are behind in their car payments by 90 days or more, the Federal Reserve Bank of New York reported Tuesday.

Last year, car shoppers borrowed $584 billion to buy new cars, up $9 billion from 2017. Last year’s sum is the highest recorded by the Federal Reserve since it began tracking those numbers in 2000.

The report indicated that while shoppers borrowed more money to buy new cars, sub-prime borrowers with credit scores lower than 620 inched up, too.

“For auto loan originators, the credit score distribution was flat, and individuals with subprime scores received a substantial share of newly originated auto loans,” officials at the Fed’s Center for Microeconomic Data wrote.

In their analysis, economists said that the rise in delinquencies was “a development that is surprising during a strong economy and labor market,” which may suggest that while jobs and the economy are growing, wage growth may be lagging. 

Overall, borrowers from auto financing companies defaulted more than borrowers from credit unions, banks, or captive-financing companies, such as GMAC and Ford Motor Credit Company. Auto finance companies also had a higher share of sub-prime borrowers, compared to the other lending agencies. Auto finance companies typically operate “buy here, pay here” car lots, where interest rates can be much higher, and a bigger burden for some borrowers.

Delinquent loans reached their most recent peak in 2009, but last year’s rise in delinquent loans has raised some eyebrows among economists. Past-due car payments may be a leading indicator that working- or middle-class Americans are struggling to make ends meet.

“Your car loan is your No. 1 priority in terms of payment,” Michael Taiano, a senior director at Fitch Ratings, told The Washington Post. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher-priority payment than a home mortgage or rent.”

The study also revealed that younger car buyers are taking on more debt for cars than before, with 18-29 year olds reporting a larger debt share for car loans compared to other age classifications.

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