Auto-Loan Delinquencies at Record High: Should We Worry?
Auto-loan delinquencies are at a record high, with subprime loans being the biggest cause for concern. This news has raised questions about the state of the auto industry and the overall economy. However, it’s important to note that car loans going delinquent isn’t as scary as when housing loans aren’t paid. So, should we worry about this news or just shrug it off as a temporary blip?
The State of Auto-Loan Delinquencies
According to the Federal Reserve Bank of New York, auto-loan delinquencies have reached a record high of 7 million borrowers who are 90 days or more behind on their payments. This is a significant increase from the previous record of 6 million in 2010 during the Great Recession.
Subprime loans, which are given to borrowers with poor credit scores, are the biggest cause for concern. These loans make up a significant portion of the auto-loan market and have higher interest rates than prime loans. As a result, subprime borrowers are more likely to default on their loans.
The Impact on the Auto Industry and the Economy
The high level of auto-loan delinquencies is not a great sign for the auto industry or the overall economy. If borrowers continue to default on their loans, it could lead to a decrease in demand for new cars and a decrease in sales for automakers. This could have a ripple effect on the economy, as the auto industry is a significant contributor to GDP.
However, it’s important to note that car loans going delinquent isn’t nearly as scary as when housing loans aren’t paid. During the Great Recession, the housing market crashed, leading to a widespread economic downturn. While auto-loan delinquencies are concerning, they are not likely to have the same impact on the economy as housing loan defaults.
Temporary Blip or Cause for Concern?
So, should we worry about the record high auto-loan delinquencies or just shrug it off as a temporary blip? It’s difficult to say for sure, but there are a few factors to consider.
First, car prices are currently at a high level, which could be contributing to the increase in delinquencies. As prices continue to rise, more borrowers may struggle to make their payments. However, if car prices were to drop to a more affordable level, it could alleviate some of the pressure on borrowers.
Second, the economy is currently in a strong position, with low unemployment and steady GDP growth. This could help mitigate the impact of auto-loan delinquencies on the overall economy.
Finally, it’s important to note that the auto-loan market is still relatively small compared to the housing market. While a significant increase in delinquencies could have an impact on the economy, it is unlikely to cause a widespread economic downturn like the housing market crash did.
Conclusion
In conclusion, the record high auto-loan delinquencies are cause for concern, particularly for subprime borrowers. However, it’s important to keep in mind that car loans going delinquent isn’t nearly as scary as when housing loans aren’t paid. While the increase in delinquencies is something to keep an eye on, it may just be a temporary blip. As car prices continue to rise and the economy remains strong, the impact of auto-loan delinquencies on the overall economy may be limited.
