Past Due Auto Loans Surge

A sign of the economic times we live in is that home foreclosures are up sharply while unemployment is at the highest levels we’ve seen in many years. Homeowners who lose their jobs are at risk of losing their homes, but they’re also among the consumers who are now losing their cars.

17% Surge In Late Payments

According to Experian Automotive, a division of consumer reporting agency Experian, automotive loans which are at least thirty days past due has jumped by 17% in the fourth quarter of 2008 versus the same quarter a year earlier.

“There continues to be a steep climb in the number of people past due on their auto loans, which causes a negative ripple through the industry,” said Scott Waldron, president of Experian Automotive. “As more loans become delinquent, lenders begin to tighten their criteria for automotive lending. Ultimately, this makes it more challenging for consumers to find funding when they want to buy a car or truck and more difficult for dealers to help consumers secure financing.”

Our Hammered Economy

The U.S. auto industry has been hammered over the past year by high fuel prices, a sinking economy and tightening credit.  Up until recently, it was virtually impossible for borrowers to get an automotive loan if their credit score wasn’t at least 700 points. Now, thanks to government help, many consumers with scores as low as 621 can qualify though the effects of these changes isn’t clear yet.

“The overall drop in consumer credit, combined with lenders’ tightening of loan criteria, is making it more difficult for auto retailers to find financing for their potential customers,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “However, there are still financing sources out there if retailers know where to look. They need to develop a better understanding of lenders in their market and find out who has programs for various credit levels.”

The federal government may soon be doing its part to stimulate car sales through a cash for clunkers program that could give buyers as much as $5000 to turn in their old cars.  That program is being weighed by Congress and could be an important step to rejuvenate the economy.

Source: Experian Automotive