The number of auto loans more than 60 days late decreased in the first quarter of 2009 compared to last quarter 2008. Auto loan delinquencies for the period of January through March were 0.83%, a 0.03% drop compared to fourth quarter 2008.
Despite the decrease from last quarter, car loan delinquency rates are up compared to first quarter last year. Credit reporting agency TransUnion told MSNBC that the 60-day auto loan delinquency rate of 0.83% for the first quarter this year was 28% higher than last year’s rate of 0.65%, before the recession had hit.
Peter Turek, TransUnion’s automotive vice president, cautioned that there is typically a decrease in car loan delinquency rates from fourth quarter of one year to first quarter of the next, and that this year’s decrease was actually smaller than usual.
We recently reported that interest rates on car loans are increasing, and the increase in delinquency rates compared to last year could speed that up. Lenders and banks increase auto loan interest rates to make up the money they lose on defaulted car loans. The rise in car loan delinquencies could cause banks to tighten lending restrictions on car loans even more than they have. If that happens, interest rates on car loans could increase over the next few months until banks get more comfortable with lending.
The flipside of that is that banks are just as eager to exit the recession as anyone else, and if the delinquency rates on car loans continue to fall, interest rates will too. As delinquency rates fall, banks will open up lending to consumers with lower credit scores, which will help boost car sales.
When new car sales turn around, carmakers will be able to get rid of some of their sales incentives that take thousands of dollars off the price of a car. If you can afford a new car, this could be the best time to buy one, while incentives are still strong and car loan interest rates are still low.