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Delinquency Rates on Auto Loans Improving As More Lenders Tighten Lending Guidelines

The 30-day and 60-day delinquency rate on auto loans is beginning to improve, a result of auto lenders tightening the underwriting criteria they use to approve loan applications in recent years, according to data released this week by Experian. The data was part of Experian’s quarterly auto finance report.

The report can be accessed by clicking here.

Delinquency rates on a state-by-state basis tend to be higher in the Southeast portion of the country, Experian reported, especially in Mississippi, Louisiana, and South Carolina, which reported the highest delinquency rates on both a 30-day and 60-day basis.

The average monthly car payment on new car loans hit a new high, at $523, Experian reported. That is up $15 from a year earlier. The average monthly car payment on used car loans was $436, an increase of $26 from a year ago.

Not only are loan payments increasing, but the length of the loans is increasing as well. The average new car loan has a term of 69 months, up six months from a year ago.

In the early part of this decade, lenders loosened their underwriting criteria and approved more loans to borrowers with less-than-perfect credit as a means of bolstering their lending operations. But the ensuing increase in delinquency and default rates, coupled with fears about a subprime auto finance bubble – similar to the subprime mortgage bubble that popped and caused the Great Recession a decade ago – sent lenders back up the credit spectrum. The average credit score for a new car loan was 716 in the first quarter of 2018, up from 710 three years ago.

Overall, there were $1.108 trillion of auto loans outstanding in the first quarter of 2018, another new record.

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