The percentage of auto loans delinquent 30 or more days rose slightly in the fourth quarter, Moody’s Analytics said, adding that it’s not cause for alarm. Most of the auto originations in the third quarter went to high-income borrowers, Moody’s data show.
“This could be interesting for lenders,” said Deniz Tudor, director at Moody’s Analytics. “With the economy improving and better quality of borrowers today than during the recession, even if you are seeing a turnaround [in delinquency rates] for auto, it might take awhile for it to become a real problem.”
About 27 percent of loans originated in the third quarter went to borrowers with incomes of $61,000 or more. About 21 percent of originations went to borrowers with incomes of $31,000-$40,000. Only 4 percent of originations were to borrowers who make $20,000 or less.
Consumers with incomes of $30,000-$50,000 made up the biggest share of originations pre-recession, Tudor said. “Today’s customer is better quality than before,” she said.
The age groups with the highest origination levels align with income levels, as younger borrowers are starting their careers and older borrowers tend to be more established, she added. Borrowers 24 years old or younger made up 6 percent of originations, while those who are 45-54 made up 23 percent and those 35-44 made up 22 percent, according to Moody’s Analytics data.
“When we look at delinquencies and defaults, it is the highest for millennials, so it’s good that there is little demand,” Tudor said.
In December, loans to borrowers 24 years old or younger had a 5.39 percent delinquency rate and a 0.5 percent default rate.
The delinquency rates for auto loans have increased slowly, Tudor said. “They’re not going to hit immediately tomorrow,” she said. “It’s a slow upward trend.”
Most of the delinquencies fall into the subprime bucket, especially for consumers with credit scores under 580, she said.
The delinquency rate for home equity lines of credit, student loans and first mortgages fell in the fourth quarter compared with a year earlier. Auto loan delinquencies, however, rose slightly, to 3.3 percent from 3.1 percent a year earlier.
“Auto was the only one that had [credit] loosening in the last couple years and that’s why we are seeing a turnaround,” Tudor said. “The auto lenders have started extending longer term loans and giving 0 percent interest rates.”