Will autos be the first crack in credit?
Delinquencies (90+ days) in auto loans and leases continue to rise, as they approach all-time highs. Outstanding auto loan balances were up almost 5% in Q2, and are fast approaching a record USD 1.3tn. What is most notable is the divergence between delinquencies and the unemployment rate. One of the reasons for this is 50% of these loans are going to subprime (FICO below 620) borrowers who are not reflective of the healthy U.S. labor market. These borrowers have to pay extremely high interest rates (12-15% for new cars and 17-20% for used cars). Additionally, unlike other types of consumer loans such as credit cards where the borrower can dial back to a minimum payment if things are tight, there is no wiggle room with auto loan payments.
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