Americans had more outstanding auto-loan debt in 2018—1.27 trillion dollars in total—than at any point in the preceding 19 years.
This conclusion comes from researchers at the New York Federal Reserve, who analyzed data from the Fed's Consumer Credit Panel, a survey of Americans' debt based on proprietary information from the consumer credit rating bureau Equifax.
The New York Fed also finds that there are some seven million loans with auto-loans more than ninety days delinquent, a million more than there were at the end of 2010, when delinquencies were last at their worst.
The Fed report emphasized that the majority of new auto loans issued in 2018 were taken up by creditworthy individuals, meaning those with a credit score above 720. 30 percent of the overall pool was composed of individuals with scores over 760; by contrast, those who were ranked as "subprime" constituted just 22 percent.
This means practically that while there is a great deal of auto debt currently out there, percentage-wise most of it is held by people who are likely to repay. Still, the steadily growing stock of auto loans means that in absolute terms, there are more subprime borrowers than ever, meaning "a larger group of borrowers at high risk of delinquency."
At the same time, the number of auto loans in delinquency has crept up for the past six years. By the end of 2018, 2.4 percent of loans were more than 90 days delinquent, compared to 1.5 percent at the low of 2012.
That increase in delinquency is driven primarily by borrowers with lower credit scores (660 and under). Eight percent of outstanding loans to those with a credit score under 620 are 90-plus days delinquent, a rate approaching the peak figure of delinquency during the Great Recession. These debtors were also likely to be younger — four percent of 18 to 29 year-olds were delinquent, compared to around 1.5 percent of older borrowers.
Much of that low-quality debt comes from large banks and the auto-finance industry, accounting for more than 170 billion dollars in sub-prime lending by the end of 2018. Auto finance companies make half of their loans to sub-prime debtors — indicating that many people with poor credit who are seeking to buy a car turn to a particular kind of firm, which in turn may be more likely to charge high interest rates.
How subprime debtors are treated is one of two potential concerns suggested by the absolute increase in subprime auto-debt; the other is the growth in subprime debt overall. Although most of the growth in debt is attributable to creditworthy debtors, a growth in high-risk debt may still be a macroeconomic threat. The N.Y. Fed noted that it has been tracking the steady increase in auto loans for the past five years.