DID YOU KNOW: Missed payments could disrupt a smooth ride for car-loan borrowers
The auto loan market continues at a healthy pace. According to a survey of more than 240 executives at financial institutions, conducted by VantageScore Solutions in conjunction with data-gathering for the Index of Banking Activity, about 62% of lenders believe current auto-loan credit standards are “about right.” (In contrast, just over 7% believe auto-loan standards are too tight, and the remainder, about 31%, considers standards too loose.)
Delinquency rates among auto loan borrowers are expected to remain at historical lows as well. According to TransUnion, though the national auto loan delinquency rate is expected to rise slightly, from 0.36% at the end of 2012 to 0.37% in Q4 2013, the level has dropped more than 50% from its peak of 0.86%, in Q4 2008. Even though the delinquency rate is expected to be low across the population, just a single missed payment can have a significant impact on an individual borrower’s credit score. For someone with a very high credit score, a payment that goes delinquent for more than 30 days can result in a drop of between 80 and 100 points. The score will drop again if the borrower becomes 60 days delinquent, although the drop will be less severe. For someone with a mid-level credit score, the amount of score drop would be less severe because that person’s score has been negatively impacted already. This person’s credit score would likely drop by approximately 60-80 points after becoming 30 days delinquent. And again, the score will drop a second time if the borrower becomes 60 days delinquent. It is expected that 2013 will again be a robust year for auto lending. Regardless, new car buyers need to always keep their eyes on the long road ahead, and to be sure to borrow prudently and within their means. If a hot set of wheels stretches the budget too tight, and late or missed payments result, it could mean rough conditions ahead when applying for a mortgage or other loans. A ride that’s less exotic but more affordable could mean a smoother journey over the long haul.