Record number of subprime borrowers miss car loan payments in October, data shows

Audio By Carbonatix

Enlarge

By Manya Saini

(Reuters) -The share of subprime borrowers at least 60 days behind on their auto loans rose to 6.65% in October, the highest level on record, according to Fitch Ratings data going back to the early 1990s.

CONTEXT

Subprime borrowing refers to lending to consumers with lower credit scores or limited credit histories, who are considered higher risk and typically charged higher interest rates to offset the increased likelihood of default.

PrimaLend, which serves the “buy-here-pay-here” auto financing market — where dealers sell and directly finance vehicles for customers with poor or limited credit — filed for bankruptcy protection last month.

Tricolor, which sold cars and provided auto loans mostly to low-income Hispanic communities in the Southwestern United States, also filed for bankruptcy in September.

A further deterioration in credit quality could weigh on lenders, especially at a time when investors are highly sensitive to signs of stress in loan portfolios.

GRAPHIC 

WHY IT’S IMPORTANT

High borrowing costs, rising living expenses and shrinking savings are squeezing household budgets, leaving subprime borrowers increasingly vulnerable.

Rising subprime auto delinquencies are emerging as a clear sign of mounting stress in the credit market, as many lower-income Americans struggle to keep up with payments.

BY THE NUMBERS

Subprime auto loan delinquencies, where borrowers have gone at least 60 days without making a payment, rose to 6.65% in October, up from 6.50% in September and 6.23% a year earlier, according to Fitch Ratings data.

For prime borrowers, those with stronger credit histories, the rate held steady at 0.37%, unchanged from both the previous month and a year ago, indicating they remain largely shielded from the financial strain affecting lower-income consumers.

(Reporting by Manya Saini in Bengaluru; Editing by Shilpi Majumdar)