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Auto Payment Delinquency: What You Need to Know

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Automobile loan delinquencies are increasing. It’s a serious problem that causes major headaches for car dealerships and lenders. Here’s what you should know about auto payment delinquencies and the advice lenders like Bay County Financial Services can offer.

How Did We Get Here?

Although vehicle prices have increased over the past two years, auto loan delinquency rates remained low, especially during the pandemic. In 2020 and 2021, many Americans felt the economy’s pinch and needed extra assistance to stay afloat. That brought about a decrease in auto loans. If people borrow less, there will be fewer instances of default. 

For others, loan payments were not an issue during this time. People were not spending money on travel or entertainment. Their budget for those items was spent elsewhere, like ensuring timely car payments. Now, there’s a shift. Not only are borrowers falling behind, but the Federal Reserve is also combatting growing inflation rates. Dealerships and lenders are now seeing delinquency rates return to pre-pandemic levels. 

Why Are They Getting Worse?

Default cases are rising because people are taking out more car loans. That translates into more subprime borrowers at risk of falling behind. Although the labor market is strong and employment numbers are up, not everyone is thriving in the US. There was also an extensive grace period for those struggling to pay their mortgages, credit cards, and other invoices. As that ends, it’s even more important for borrowers not to default on their loans because it puts them at risk of losing their vehicle. 

How Do We Help Avoid Delinquency?

Before approving loans, lenders and dealerships need to help customers understand the reality an auto payment has on their monthly budget. We can help them navigate this by clarifying:

  • What is a borrower’s monthly income?
  • What is on their list of fixed expenses?
  • Do they tuck money into their savings monthly?

It also comes down to a better understanding of what true affordability looks like. A customer may be able to secure a large loan, yet can they still afford other expenditures and keep up with payments? Leading customers toward staying within their budget helps us all: none of us want to see a client’s car taken away when it is their lifeline to getting to school, work, and achieving economic stability. Some customers do not have the foresight to understand that car-buying decisions today affect tomorrow’s financial future. We want new car owners to drive off the lot happy. That’s why it’s up to all of us––dealerships, lenders, and clients––to work together and be clear about the expectations of repaying approved loans.

Bay Country Finance has taken steps to continue offering customers the fast, flexible auto loans they need while putting parameters in place to help deter loans from becoming delinquent before approval. We are here for you and your auto-buying clients. We also understand that financial hardships happen. That’s why we are here to help customers when they need it most. You can rely on our teams in Glen Burnie, Reisterstown, and Easton, Maryland, for your lending needs. Contact us today; let us know how we can help you!