Auto Loan Defaults and Repossessions Are on the Rise

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By: Robert J. Nahoum

The rising rate of auto loan defaults and repossessions has become a growing concern for in recent years. With the economic fallout from the COVID-19 pandemic and rapidly increasing rates of inflation, many consumers have been struggling to make ends meet, resulting in an increase in missed car payments and ultimately, vehicle repossessions.

According to a recent report by the Federal Reserve Bank of New York, auto loan delinquencies (defined as payments that are at least 90 days overdue) have been steadily increasing since 2012. As of the fourth quarter of 2020, the delinquency rate stood at 7.65%, the highest level since the end of 2011. Additionally, the report notes that auto loan balances in serious delinquency (at least 90 days overdue or in default) have been increasing since mid-2019 and have continued to rise during the pandemic.

More recently, the number of borrowers who are 60 or more days late on their auto loan payments was 26.7% higher in December 2022 than it was a year earlier.  Once a payment is 30 days late, lenders report the delinquency to the credit-reporting agencies, and the borrower’s credit takes a hit.

The causes of this trend are multifaceted. On one hand, there has been a significant increase in subprime lending, with lenders offering loans to consumers with lower credit scores and higher risk profiles. These borrowers may be more likely to default on their loans, especially during times of financial hardship. Additionally, the increasing cost of cars has resulted in longer loan terms, which can leave borrowers more vulnerable to default.

The pandemic has also had a significant impact on the auto loan market. With widespread job losses and economic uncertainty, many consumers have been unable to make their car payments. In response, some lenders have offered payment deferrals or other forms of forbearance, but these measures may only be temporary solutions. As the pandemic continues to affect the economy, the risk of default and repossession may increase.

The rise in auto loan defaults and repossessions can have significant consequences for both consumers and the broader economy. When a car is repossessed, the borrower loses their transportation, which can make it difficult to get to work or carry out daily activities. The repossession can also damage the borrower’s credit score, making it more difficult to obtain credit in the future. For lenders, defaulted loans can result in financial losses and decreased profitability.

To address the issue of rising auto loan defaults and repossessions, policymakers and lenders may need to consider a range of solutions. This could include increasing consumer education and financial literacy, promoting responsible lending practices, and exploring alternatives to traditional auto loans, such as leasing or subscription services. Additionally, policymakers may need to consider targeted relief measures, such as debt forgiveness or targeted loan modifications, to help struggling borrowers.

The rising rate of auto loan defaults and repossessions is a complex issue that requires careful consideration from policymakers, lenders, and consumers. By working together, we can develop solutions that help borrowers avoid default while ensuring that the auto loan market remains stable and sustainable.

If you need help settling or defending a debt collection lawsuit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.

The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202