The New York Fed reports that more than 7 million Americans are behind on their car payments by 90 days or more as of the end of last year, CNBC reports. That figure is more than 1 million people higher than the previous record in the United States, which peaked in 2010 following the economic downturn that would become known as The Great Recession.
In addition to the alarming rate of delinquency, there was also a $584 billion jump in total auto loan debt, which is the largest increase in the nearly two decades that those numbers were tracked.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector,” Fed economists said in their report.
The report went on to indicate that overall, the quality of auto loan credit quality has actually improved, meaning a healthier overall portfolio across the segment. The increase in delinquencies, rather than reflecting on loans in general, speaks to a lower quality of loans among now subprime borrowers who are by definition at a larger risk of delinquency. Most of these new subprime loans can be traced to finance companies, rather than automobile dealerships, providing some insight into where these borrowers are coming from.
A record number of Americans are 90 days behind on their car payments— Stephanie Ruhle (@SRuhle) February 13, 2019
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Michael Taiano, a director at credit agency Fitch Ratings, points out that car loans are generally very high on people’s lists when it comes to what they will pay when money gets tight, indicating that if loans are falling behind at high rates, it isn’t a good sign for the credit markets or consumer financial health as a whole.
“Your car loan is your No. 1 priority in terms of payment,” Taiano said. “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.”
That is to say nothing of unsecured debt such as credit cards, which unlike rent payments and home or car loans have less tangible consequences for delinquency compared to vehicle repossession, foreclosure, or eviction.
To give some idea of the scale of a potential financial impact, the auto loan market is valued at around $1 trillion, while the U.S. mortgage market is valued at around $9 trillion. Even so, despite the comparatively smaller size of the auto loan market, many economists are beginning to express concern about a national downturn in payment similar to the housing crisis that upended the economy most recently.