Auto Loan Delinquencies are On the Rise

Auto loan delinquency rates are reaching staggering levels, leading some industry experts to compare the current numbers to 2008’s disastrous housing bubble.

The rise in recent years of a booming subprime auto lending market has meant millions of consumers with poor credit scores – typically 640 or below – are able to secure loans. The surge in these riskier loans can be attributed to two occurrences: mortgage rates are down, so lenders are upping availability of other types of loans instead, and hedge funds are buying up the cheap, readily-available investments backed by subprime auto loans in hopes of cashing in like they did in the housing boom previously.

What does this mean for auto consumers? While subprime loans are often seen as questionable, they remain legal. However, that may soon change as state and local governments study the effects on consumer financial health. With lenders making long-term auto loans that far outpace the value of the vehicle over time, consumers can easily find themselves upside down on a car loan.

Image via Flickr/GotCredit