As the economy continues to suffer from the effects of the ongoing pandemic, more and more Americans are struggling to make their car payments on time. According to a recent report from the credit bureau TransUnion, auto loan delinquencies rose by 27% in the second quarter of 2020 compared to the same period last year. This trend is particularly worrying because it exposes the underlying cracks in the consumer credit market, which has long been propped up by easy access to debt.

The rise in late auto payments is a clear sign that many people are struggling to make ends meet in the current economic climate. With millions of Americans out of work and many others facing reduced hours or pay cuts, it's no surprise that car loans are among the first bills to go unpaid. However, the implications of this trend go far beyond individual consumers and their car payments.

For one thing, auto loans are a crucial part of the larger consumer credit market, which is worth trillions of dollars and underpins much of the U.S. economy. When consumers start falling behind on their car payments, it's a sign that they may be struggling with other debts as well, such as credit card balances or mortgages. This, in turn, can lead to a ripple effect throughout the financial system, as lenders become more cautious about extending credit and investors become more skittish about buying securitized debt.

Moreover, the rise in auto loan delinquencies highlights the extent to which consumer credit has been propped up by lax lending standards and low interest rates. For years, lenders have been eager to extend credit to people with less-than-stellar credit histories, knowing that they could securitize these loans and sell them to investors hungry for yield. Meanwhile, the Federal Reserve has kept interest rates at historic lows, making it easier for consumers to borrow money.

However, this model has its limits. As more and more consumers fall behind on their payments, lenders will become more wary of extending credit to risky borrowers. This, in turn, could lead to a tightening of credit conditions across the board, making it harder for people to borrow money for everything from cars to homes to education.

In short, the rise in late auto payments is a warning sign that the consumer credit market is reaching its limits. While easy access to debt has helped fuel economic growth for years, it's becoming increasingly clear that this model is unsustainable. If policymakers and lenders don't take steps to address these underlying issues, we could be in for a bumpy ride in the years ahead.

Leave a comment

Please note: comments must be approved before they are published.