Despite the low unemployment rate and stable economy in the United States, the number of delinquent car loans has been on the rise. In fact, according to a Moody’s Analytics analysis, the percentage of auto loans that were more than 30 days behind on payments hit its highest level since 2010. This is a concerning trend, especially since the past few years have been financially beneficial for consumers.
Why are More Americans Struggling with Car Loan Payments?
One of the biggest factors that contribute to the rise in car loan delinquencies is the current state of inflation. The prices of everyday goods and services are on the rise, which can make it difficult for people to keep up with their financial obligations. For car owners, this inflation has caused a significant increase in the prices of vehicles, making them more difficult to afford.
Many consumers took out large loans to buy these cars, which means that they have less breathing room when it comes to keeping up with payments. This can put them in a difficult position if they face a financial emergency or unexpected expense.
Who is Most Affected by Car Loan Delinquencies?
People with low credit scores are the most vulnerable when it comes to car loan delinquencies. According to Moody’s Analytics, approximately 9.3% of auto loans that were extended to people with low credit scores were more than 30 days behind on payments at the end of last year. This highlights the importance of having a good credit score, as it can make it easier for people to access credit and avoid falling behind on their financial obligations.
What are the Consequences of Car Loan Delinquencies?
Falling behind on car loan payments can have a number of consequences, both financial and non-financial. For example, it can lead to additional fees and interest charges, which can make it even more difficult for people to catch up on their payments. Additionally, it can hurt people’s credit scores, which can make it harder for them to access credit in the future.
In some cases, delinquency can lead to repossession, which can be a devastating blow for people who rely on their vehicles to get to work or take care of their families. This can put them in a difficult position, as they may struggle to find alternative transportation options that are affordable and reliable.
What Can Consumers Do to Avoid Car Loan Delinquencies?
The best way to avoid falling behind on car loan payments is to be proactive and plan ahead. This means being realistic about what people can afford and budgeting accordingly. It also means paying attention to interest rates and terms before signing any loan agreements, so that people can be sure that they understand what they are agreeing to.
Additionally, it’s important for people to have an emergency fund that they can rely on if they face unexpected expenses or financial hardships. This can help them avoid falling behind on payments and protect their credit score.
Conclusion
The rise in car loan delinquencies is a concerning trend that highlights the importance of financial responsibility and planning. With inflation on the rise and car prices increasing, it’s more important than ever for consumers to be mindful of their finances and make smart decisions when it comes to borrowing and budgeting. By being proactive and planning ahead, consumers can avoid falling behind on car loan payments and protect their financial wellbeing.