Could the next sub-prime crisis come from auto loans?
More subprime borrowers defaulted on their car loans in the years following the Great Recession than during or before the crash. It seems automakers' financial arms and other lending institutions, in a rush to recover from the bad old days of 2008, lent money to less-than-solid borrowers. Auto sales have gone up post recession, but so has loan delinquency.
Bloomberg compared delinquency rates on auto loans made to subprime borrowers before and since 2010, when the economy slowly began to pull out of the tailspin caused by subprime mortgage lending.
Conventional wisdom dictates that delinquency rates on subprime car loans should drop along with unemployment, but that isn't the case here. Between 2003 and 2009, four-to-five percent of subprime auto loans were delinquent. In the years following the recession, that rate has nearly doubled. Bloomberg reported in March that following a three-year lending boom the rate of auto loans more than 30 days delinquent rose to 7.59 percent, the highest in at least three years.
Delinquency actually peaks for borrowers 3.5 years into paying their loans, suggesting that borrowers who took out loans in the early stages of the recovery are having the hardest time making payments.