There’s been a spike in the average size of car loans that
banks and other lenders are writing off as a loss following months of unpaid
bills by borrowers, an official of the Office of the Comptroller of the
Currency, a unit of the Treasury Department. At banks, the average charge-off
for a car loan was $7,618 in the fourth quarter of 2013, up 12% from a year ago.
For the entire car-loan industry, the average charge-off was
$8,520, up 17% from a year prior, according to Experian. The average loan that
major lenders gave out at the end of 2013 on new and used cars exceeded the
value of the car at the time of purchase. In some cases, that is because of
add-on products such as extended warranties and car accessories that are increasingly
financed as part of the car loan.
Other more-recent data suggest that problems with auto loans
could worsen. Banks, credit unions and certain nonbank lenders in the second
quarter of this year reported increases compared with the year prior in car loans
on which borrowers hadn’t made payments in 60 days.
The total balance of these delinquent loans was just over $4
billion during the second quarter, up 27% from a year prior. Some delinquent
loans are eventually charged off by lenders.
Car-loan originations have taken off over the past couple of
years as more buyers have flooded the market for new cars. Total outstanding
car loans at national banks and thrifts increased 13% in 2013 and grew 5%
during the first half of this year.
The latest round of losses follows a pickup in subprime
lending in the car sector. Some $83 billion of subprime car loans were given
out during the first seven months of this year, up 7.5% from the same period a
year prior, according to another credit-reporting firm, Equifax. It was
the highest dollar amount for the first seven months of the year since at least
2007. The firm defines subprime borrowers as having a credit score below 640 on
a scale that tops out at 850.
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