Each quarter, TransUnion collects and analyzes data on mortgages, auto loans, credit cards, and personal loans. Then at the end of the year, they analyze all the data collected and release their annual consumer credit forecast.
This report predicts consumer balances and delinquency rates in the upcoming year; the news follows concerns over auto loan performance from the average consumer. Here are some of the main takeaways from this report as it relates to auto loans:
Consumers Begin Financing More Used Vehicles
The areas affected by Hurricanes Irma and Harvey will likely receive a temporary boost in new vehicle sales. But long-term, TransUnion is predicting that consumer demand for new vehicles will wane and largely shift to used vehicles.
Brian Landau, senior vice president of TransUnion, stated that up to 900,000 replacement vehicles may be required in areas recently affected by the hurricanes. He added that this, “…would impact both total balances and debt per borrower in the early part of 2018.”
Delinquency Rates Will Increase at a Slower Pace
Auto loan delinquencies will be on the rise in 2018. However, the rate of increase should be much more modest than levels previously seen during the 2008 financial crisis. It’s been projected that auto loans that are delinquent by more than 60 days will hit 1.43 percent at the end of the fourth quarter.
They are expected to rise to 1.46 percent by the end of 2018. This represents an increase of 18.7 percent in the past five years; at the end of 2013, auto loan delinquencies were at 1.23 percent.
And the average borrower is expected to owe $18,588 at the end of the fourth quarter; a figure that will increase to $18,694 in the next year.
Lending Standards Will Tighten Considerably
Due to higher delinquency rates, auto lenders will begin to move away from subprime lending. Going forward, lenders will prefer lower-risk consumers and will begin requiring larger down payments in order to meet certain underwriting standards.
Landau added that there are seasonal shifts in delinquency rates and that they may fall mid-year before rising to levels higher than expected by the end of 2018.
The report also concluded that credit card delinquencies are expected to rise in the next year while still remaining below levels seen in 2008 and 2009. Meanwhile, personal loans and mortgage delinquencies will hit new lows.