Subprime Auto Loan Bond Delinquency Rate at 5.13% in October

The percentage of subprime auto loan borrowers who have fallen behind on payments has risen by more than a percentage point over the last year. 

The share of borrowers who are at least 61 days late on a payment stood at 5.13% in October, up from 3.76% a year earlier, Bloomberg reported Tuesday (Nov. 8), citing figures from Fitch Ratings. 

In October 2021, the rate was lower because households with subprime auto loans still had cash from the pandemic-era stimulus payments, the report said. 

While those payments have ended, consumers are still benefiting from a low unemployment rate. This stood at 3.7% in April, which is below the 10-year average of 5.3%, according to the report. 

At the same time that a growing share of borrowers are missing payments on these auto loans, the wholesale prices of used cars are falling, the report added. 

Because the cars serve as collateral, this threatens the bonds that are tied to subprime auto loan debt, according to the report. 

Consequently, the yields on some of the riskiest of these sorts of bonds have jumped between September and October. Now, the gap between the yields on these bonds and those of Treasuries is the widest since 2010, other than a few weeks during the pandemic.

As PYMNTS reported in April 2021, subprime auto loan delinquencies can be a sign of paycheck-to-paycheck consumers resorting to triage while managing their daily financial life. Consumers tend to the most pressing expenses first — for example, rent or mortgage payments. 

In related news, Discover Financial reported recently that the credit card 30-day delinquency rate was up to 2.1% in the most recent quarter, up from 1.5% the previous year.