2015 was a record breaking year for the US auto industry. Overall auto sales reached all-time highs, with over 17.3 million vehicles sold last year.
Unfortunately, this fantastic news also comes with one of the largest increases in auto loan delinquency rates on record. Check out a few recent findings from the Federal Reserve and Transunion:
- Outstanding auto loan debt in the US has now topped $1 trillion.
- The average consumer balance reached $18,000, a 3% increase from 2014.
- 75 million consumers now have auto loans in the US. That’s an increase of 5 million consumers between 2014 to 2015.
And we’re already feeling the aftermath of ballooning loan amounts and originations. According to Transunion, we are witnessing an increase in the auto delinquency rate not seen since before 2010. Bloomberg reports that the default rate has already increased in 2016, with 12.3% this past January, up from 11.3% in the prior month of December.
Some of these trends shouldn’t surprise us since US auto sales were high. But looser underwriting standards have also accounted for the losses built up from funding risky loans. As we all know, the general pattern after delinquency is default, and this is a really big problem if the market indicates that delinquencies are on a historic rise.
This could be bad news for auto dealers and lenders who help finance cars for low credit consumers. What ultimately ends up happening is a misleading cycle of high potential returns versus high risk, in which the auto dealer or lender concludes that the return potential on a used car sale outweighs the risks associated with delinquency and default.
Those who make subprime lending deals may find themselves unable to stomach over-budgeted losses that spring up later down the road, especially in this shaky lending climate. (Let’s not forget that most delinquencies occur 4-5 months after loan origination).
So how are auto dealers and lenders able to move forward, given the increase in auto delinquencies and default?
Better Underwriting Practices – It’s almost quite hard to believe that there are still many auto loan deals being made to customers with 0 credit – an extremely risky deal to make. Ensure that you are going through deals with tighter applications and verifications when you encounter a high-risk customer.
Automatic STIPS verification can make your life easier and get you your car buyer’s basic employment and housing verification.
However, it’s always recommended to ask even more questions about a car buyer’s ability to make their monthly car payment. You should always take into account how much of the car buyer’s after-tax income is leftover after deducing the costs of food, housing or utilities.
Secured Profits with GPS Tracking – There’s a good reason why some lenders offer lower loan interest rates on loan interest rates if low-credit car buyers agree to have GPS devices installed in their cars. In order to prevent a large potential loss, having the option of immediate vehicle location and near-immediate recovery or repossession is important.
Additionally, one study found that 1 in 8 used car dealers in California have sold one vehicle at least three times. Imagine having to undertake the task of locating a car several times without a sound GPS tracking system in place the first time around.
There is real value in adopting GPS vehicle tracking software for your lending business or car dealership. Based on our customers’ feedback, we’ve found that:
- 84% of report reduced delinquencies after installing GPS vehicle tracking
- 78% have been able to finance customers with lower credit
- 68% have been able to finance customers with smaller down payments
The auto loan bubble might burst, but that shouldn’t stop you from making solid deals with customers. And it’s never to late to start protecting your profits with GPS vehicle tracking.