Despite easy credit, a decline in late car payments
One of the major contributing factors to the Great Recession was the U.S. credit crunch. For years, banks had been loaning money to many people who probably shouldn't have been taking on additional debt. When the economy began tanking, a significant number of those consumers defaulted on their loans. As a result, banks became more cautious with their lending, which had a ripple effect on the entire country -- not least of all, the聽听颈苍诲耻蝉迟谤测.
Five years down the line, the U.S. has begun to recover, and, not surprisingly,聽. That's worried some folks (including us), but so far, Americans are keeping up with their聽聽obligations -- or at least their car notes.
Speaking to Peter Turek, the vice president of automotive financial services at TransUnion, the聽that the percentage of Americans who are 60-days behind on their聽notes is projected to reach 0.36% by the end of December. That's near the record low.
Why focus on those who are 60 days late? Because that's how TransUnion defines delinquency. Folks who fall behind 60 days or more on their loans are often unable to catch up and frequently default.聽
The delinquency rate, in turn, helps banks and analysts model economic forecasts. The fact that delinquencies are so low right now bodes well for the future.
What's particularly interesting here is that the delinquency rate is approaching a record low despite the increasing availability of credit. According to Turek, before the Great Recession, about聽40%聽of auto loans were made to individuals with credit scores below聽700. When everything hit the proverbial fan, the delinquency rate soared to 0.86%.
By 2009, credit had tightened, and only聽28%聽of auto loans were made to consumers with credit scores below 700. That had a huge impact on car sales: Edmunds.com chief economist聽Lacey Plache says between 2008 and 2011, about 1.8 million people were denied auto loans due to stricter credit requirements. 聽
Today, about聽37%聽of auto loans are made to folks with credit scores below 700 -- near pre-recession figures -- and yet delinquencies remain very low. That would imply that聽(a)聽lenders are doing a better job of screening applicants, and聽(b)聽consumers are being more conscientious about paying back loans.
