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Late Auto Loan Payments Falling

Declining rate suggests motorists gaining control of finances.

by on Aug.30, 2010

Auto loan delinquency rates are falling, even as loan availability rises.

U.S. motorists seem to be getting a grip on their household budgets and are doing a better job of getting auto loan payments in on time.

The auto delinquency rate took a sharp rise in recent years, a reflection of the worsening economy – and a mirror of the increased mortgage default rate.  In turn, that led lenders such as the former GMAC, to tighten down on auto loan availability.  At one point, in the latter half of 2008, it took a nearly perfect credit score to secure a loan from a General Motors dealer.

But industry officials report that lenders are again loosening up, at least a bit, and a declining delinquency rate is one major factor.  According to TransUnion, one of the three big credit reporting agencies in the U.S., the late loan payment rate dropped to 0.53% during the second quarter of this year, down from 0.73% during the April – June period in 2009.

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As is normal, rates varied widely across the country, from a minimal 0.28% in North Dakota to 1.05% in Mississippi.  But, significantly, the delinquency rate rose in only three states, Rhode Island, Utah and Montana.

TransUnion’s review of 27 million credit records also shows that the number of car loans written during the second quarter rose by about 18.7%, while the actual amount financed increased by $84, to $12,643.  That’s less than the inflation rate in the automotive sector and suggests either that buyers are making larger down-payments or were focused on financing vehicles with larger incentives.

Officials with TransUnion suggest that while “savvy” car buyers are returning to the market, they are particularly focused on getting the best deals possible.

Going forward, TransUnion is predicting that delinquency rates will rise again for the second half of 2010.  But that doesn’t mean cause for alarm.  The industry routinely sees a decline in late loan payments during the first half of the year, while delinquencies are more likely to rise between July and December, especially going into the holiday season, when there are other needs competing for household dollars.

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