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Demystifying The Most Hyped Auto Loan Delinquency Crisis

Over the years, the price of the cars, its features and demand, all three have risen significantly. In order to keep up with this demand, the auto finance industries have come up with a large variety of financial products time and again.

  • These funds help people, individuals as well as businesses, to buy a car even if they cannot afford to with their savings. Therefore, auto financing has helped the society at large.
  • It has also helped the economy of the country since the automobile industry is one of the major contributors to the nation’s wealth.

You will come across a lot of statistical figures and survey reports that will point towards the growth of the auto finance industry but there may be other reports that will try to prove that this is facing a tremendous crisis.

Why this discrepancy? This is because there is no need for a license to prove anything statistically. It is not like driving a car or operating on a patient, both of which cannot be done without having a proper license. It is for this reason lying with statistics is so common in people.

Taking a deeper look into the matter will help you to know about the twists and turns of the truth when it comes to the facts and data released by the Feds regarding delinquencies in auto loans.

Reading between the headlines

Recently, there has been a headline that was doing rounds in different newspapers and other media all across the nation. It read ‘Delinquent car loans hit record highs.’

  • Common people shell shocked as well as the industry experts went on panic knowing that more than seven million borrowers in America are more than 90days delinquent on their auto loans.
  • This also became the right kind of topic they were looking for making a story. This headline actually became the fodder for those people who were hell-bent on proving that the auto finance industry is unhealthy.

These people then brought forward their point of view regarding this matter and of course, there was a difference in opinions as well, just as it is always.

  • Few said it will affect the economy of the country as it will hit the automobile industry, which is one of the strongest pillars of the economy of the nation, making it weak.
  • A few others were more sympathetic about the consumers suffering from these situations saying that they are badly hit and their financial health will never be restored.

However, these people did not tell the whole part of the story or were unable to deduce it themselves. No matter whatever is the reason these people did not tell you that:

  • The number of borrowers of auto loans who were more than 90 days behind their schedule was only 5.3% in late 2010 when it peaked which is significantly low as compared to the entire money lent out to the people for buying a car.
  • They also did not tell you that this number has actually reduced now coming down to only 4.5%.

The good news, therefore, is that you can now avail auto loans easily from different sources and even in favorable terms both from traditional sources like banks and other financial institutions and credit unions as well as from other private finance and money lending companies such as Liberty Lending and others.

The number game

Since statistics is all about numbers there is a broader game that can be played with it simply due to the fact that most people believe that the numbers do not add up.

According to a recent article published on the Knowledge@Wharton site that is titled ‘Is a Subprime Auto Loan Crisis Brewing?’ discusses the matter through an interview that involved eminent people such as:

  • David Musto, the Wharton finance professor and
  • Christopher Peterson, the former advisor to the Consumer Financial Protection Bureau and a law professor at the University of Utah.

According to the excerpts of their interview, it revealed a few specific statistics that are reasonable and more believable.

Considering the seven million individuals facing the risk of losing their vehicle who are families, it showed that:

  • Most of them are living in households that have 2.5 people on an average per household.
  • This comes up to roughly about 17 to 18 million people who are directly affected by this crisis.

If one wears their shoes they will find it to be very traumatic when a family loses a car or faces a risk of losing it due to defaults and high delinquency rate. It also adds to the inconvenience in commuting whether it is for their work or to the mall to buy their needs or even to take their kids to soccer practice. Add to that there is a constant fear that the car may be repossessed anytime on the road while driving.

  • Considering the flowing data it is found that the rate of delinquency is much higher among the consumers within the age group of 18 to 29 years
  • Breaking this age group up further, it also shows that the rate of delinquency is more among the 18 to 24-year-olds as compared to those between 25 and 29 years of age.

In addition to that, the Flowing Data also showed that:

  • Just 1% of 18-year-old males and 2% of females of the same age are married whereas
  • It is 21% and 32%, respectively when men and women of 25 years old are considered.

Why did not they tell you these things? This is because such a downward curve in the rate of delinquency is actually the indication that there is a significant rise in the total number of borrowers in the past several years which typically points out at the growth of the auto finance industry – a thing they were so desperate to prove to the general public and other critics.

Therefore, if you believe in stats make sure that it is coming from the right source and covers all angles to make a crucial conclusion.


Views: 4

Tags: Automotive, auto, finance


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