Dealers across the country report that it’s difficult for customers to pay for their cars.
The New York Fed says that delinquency for car loans for less than 60 days has hit a record high of 6.56% in the subprime market (bad credit).
Wanting to avoid “automatic bubbles,” auto lenders offer payment extensions to prevent late payments.
The bad news is that borrowers will sacrifice more money to pay off the loan.
To stop retrieving the car, subprime borrowers have used lenders extension plans that are nearly five times more than the major borrowers.
Drivetime expansion rate rose from 4.71% to 6.41%. Carvana’s subprime mortgage jumped from 3.72% to 5.41%. Westlake’s subprime extension rate also rose above 9.5%.
If a current borrower makes a six-month extension on a $25,000 loan with a 15% APR, the customer will have to pay an additional $3,100 in additional interest to extend his debt longer than agreed.
To help its current clients, Russ Hutchinson, CFO of Ally Bank, says the company is reducing the timing of borrowers seized to keep up with loan extensions.
Carmax CFO Enrique Mayor-Mora said the company has “begun testing strengthening our policy so that it can further strengthen our late customers to take advantage of payment extensions.”
But Steve Beyman, a Florida Daily Financial Analyst, says this could get worse in the future. “If borrowers struggle to pay off their original loans and now they’re adding more money, these loans may not be rewarded,” Beeman said. Beaman also added that it puts more pressure on banks and other car lenders.
Currently, there is $126 billion in safe car loans. Analysts say it’s 18% of approximately $740 billion in US auto loan origination last year.
