Fewer Americans are defaulting on their car payments, even as lenders have become more willing to finance people with less-than-perfect credit, said an executive with a major credit monitoring service.
In fact, the 60-day delinquency rate for people holding car loans is expected to reach a near-record low level of 0.36% at the end of this year, down from .86% at the end of 2008, said Peter Turek, vice president of TransUnion's automotive financial services unit.
TransUnion, one of the nation's three largest monitors of auto lending, defines delinquent as being 60 days or more late on a loan payment. Banks, credit unions and automakers' own finance companies regard the delinquency rate as a key indicator of current and near-term future economic conditions.
People who are 60 days past due on car payment typically remain unable to meet payment terms and are at significant risk of losing their cars.
TransUnion's delinquency rates are based on a random sample of 27 million anonymous consumer records.
Turek also said the percentage of loans for new and used cars whose buyers have credit scores below 700 has increased from just 28% in 2009 to about 37%. Before the recession, the percentage was about 40%.
"Despite that whole increase ... we haven't seen the delinquency rate rise," Turek said. "So that is a positive sign for the consumer and for the industry."
Turek said the auto industry learned hard lessons in middle of the last decade when it wasn't uncommon for car loans to extend to 72 months or longer. Loans were made to people with very bad credit histories who had to provide little or no documentation of their income or debts.
In the wake of the financial crisis, lenders swung to the opposite extreme, rejecting people with steady employment and high credit scores seeking loans.
"Through the recession dealers and lenders, I think, learned something," Turek said. "Now they are putting consumers in the right vehicle with the right loan terms."
Lacey Plache, chief economist for Edmunds.com, said lower interest rates and better access to auto loans are key reasons U.S. light vehicle sales have increased 13.5% so far this year.
"When you look at auto sales during the recession, the credit markets really tightened up, and this really cut a lot of people out of the market," Plache said.
She estimates that about 1.8 million people were unable to qualify for the automotive loans they wanted between 2008 and 2011.
"Probably less than half of those buyers have returned to the market," Plache said.
Those deferred purchases are part of the pent-up demand that fueled industry sales even as unemployment remained above 8% for most of the year.
Low interest rates, which have dropped from an average of about 7% in 2007 to just above 4% this year, also pulled consumers into showrooms.
With the economy showing signs of a more robust recovery, Plache said, "I don't see a reason for lenders to pull back."
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