Defaults Rise for Subprime Car Loans

The delinquency rate on subprime car loans in the U.S. is on the rise, and so are defaults, The Wall Street Journal reports.

The newspaper points to rising delinquency rates among subprime loans that have been packaged into bonds in the past five years. Fitch Ratings says the overall proportion of such loans that are at least 60 days delinquent has surpassed 5%, the highest level in almost 20 years.

But non-payment rates are running as high as 12% for “deep subprime lenders” that specialize in such deals, the Journal notes.

The increase comes as the auto industry is eager to keep its sales boom alive. Last year the U.S. market reached record-high volume of 17.5 million units, and analysts predict a new record this year.

The boom has produced nearly $1 trillion in overall auto loan debt, including that for used cars, according to consumer credit rating service Equifax. It says subprime loans account for $100 billion of the total.

The Journal says bonds backed by U.S. subprime auto loans surpassed $27 billion last year, up 25% from 2014 to a 10-year high.

Using a mix of prime and subprime loans to back bonds is a practice that, when unchecked, triggered the U.S. housing crash eight years ago. The Journal says most analysts don’t see that happening in the auto sector, because of low fuel prices, stable unemployment rates and an economy that isn’t in recession, the Journal says.