July 29, 2021

Serious auto delinquencies within normal range in April, TransUnion says

Serious delinquency rates for auto loans were within a normal range from March to April indicating federal aid, tax returns and lenders’ offerings of payment deferrals largely kept consumers above water — so far — during the COVID-19 crisis, credit bureau TransUnion said Wednesday.

Just 1.33 percent of auto borrowers were more than 60 days past due on their loans last month, down from 1.37 percent in March, TransUnion said in the first iteration of its Monthly Industry Snapshot Report. There were 83.8 million outstanding auto loans in the first quarter.

Satyan Merchant, senior vice president and automotive business leader at TransUnion, said federal stimulus checks, unemployment benefits and forbearance programs are cushioning the blow of record job losses and lost profits during the pandemic.

“The federal government quickly got a very large stimulus package out the door. The question is, How long will that last? Will this thing be prolonged and will consumers ultimately have run out of options in terms of missed payments on their loans?” Merchant said.

Many major U.S. auto lenders braced for potential losses in the first quarter, setting aside hundreds of millions of dollars for auto loans that are unlikely to be repaid.

While the financial hardship spurred by COVID-19 closures occurred in waves over several weeks, TransUnion expects more insight on the pandemic’s effects on the serious auto loan delinquency rate later this year.

For example, a spike in delinquencies could occur in July for a variety of reasons, Merchant said. Losing the federal unemployment benefit associated with COVID-19 relief, slated to end July 31, could put pressure on out-of-work consumers. The federal income tax filing deadline also was moved to July 15, another stress point for consumers who may owe the Internal Revenue Service.

Deadlines also are looming on lender forbearance programs, which auto lenders are approaching differently. Lenders may opt to start consumers on balloon payments, tack on additional payments towards the end of a newly originated or active auto loan or even extend the forbearance for consumers at risk of delinquency, Merchant said. Some states have begun reopening efforts, which could offer some relief to consumers.

Automotive accounts in “financial hardship status” — which could mean a deferred payment, frozen account or frozen past due payment in their account — reached 3.54 percent last month, up from 0.64 percent in March. Accounts in financial hardship aren’t expected to go delinquent and don’t have a negative impact on a person’s credit score, TransUnion said. Generally, spikes in financial hardship status occur following a natural disaster, such as in the weeks following Hurricane Harvey in 2017.

“It’s affecting everyone. I don’t think there’s ever been a prolonged national hardship,” Merchant said. “Not across the country for over a month, or two or three months.”