At-risk borrowers fail to pay auto loans as millions still struggle

  • About 9% of at-risk auto borrowers were more than 60 days past due in the fourth quarter.
  • These borrowers are the most exposed to the risk of default and tend to hold vulnerable financial positions.
  • The government has frozen student loan interest and evictions, but there is little relief for those with auto loans.

The uneven economic fallout from the pandemic is now manifesting itself in auto loan payments – especially in their absence.

According to TransUnion data cited by the Wall Street Journal, more than 9% of subprime auto borrowers – those classified as at higher risk of default – were more than 60 days past due in the fourth quarter of 2020. That means that a lot of people just can’t pay off their auto loans right now.

This share is the highest since 2005, just before a wave of defaults triggered the global financial crisis. Meanwhile, 10.9% of at-risk borrowers with auto loans were over 60 days overdue in February, up from 10.7% in January and a sixth consecutive monthly gain.

It is the latest harbinger of the uneven and “K-shaped” economic recovery from the pandemic in which low-income Americans, women and minorities who faced disproportionate economic pain in early 2020 have fallen behind more affluent Americans as the country slowly reopens. This has been visible in everything from unemployment rates to the wealth gap, and auto loans can serve as critical indicators of widespread economic damage.

Aside from student loans and mortgages, car purchases are the largest payments made by many Americans. Failure to repay loans or leases could indicate economic fragility and a looming financial crisis.

The federal government has passed more than $ 5,000 billion in fiscal stimulus to combat the economic pain of the virus. According to Federal Reserve research, direct payments and extended unemployment benefits have been widely used to repay debts. A freeze on student loan payments and a federal moratorium on evictions avoided further financial pressures.

Yet those struggling with auto loans and rentals have received little support. These borrowers are at the mercy of private banks and lenders, many of whom continued to demand payments during the

. Subprime borrowers are the most exposed as they tend to be in more vulnerable financial situations.

The growing share of delinquent subprime auto borrowers presents a new risk at a pivotal time for the country. Economic data for March showed that the recovery is gathering pace throughout the past month. The government jobs report released on Friday added to the bullish sentiment, as the 916,000 wage bill surpassed economists’ forecasts.

However, the strong progression only marks the base of the mountain. The country has consistently lost 8.4 million jobs since the start of the pandemic, and that does not include misclassifications or Americans who have dropped out of the workforce. The count of these groups brings the sum to 14.3 million, according to Insider’s calculations.

With so many people still out of work and the spread of COVID-19 variants, risks for the nascent recovery remain. A spate of auto loan defaults could further exacerbate the slowdown and freeze the rebound as it accelerates.

About Galen A. Williams

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