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Delinquent Subprime Auto Borrowers on the Rise

Going back to November 2019, the monthly Elliott Wave Financial Forecast discussed the then rise in subprime auto loan delinquencies:

Delinquencies on subprime auto loans are surging. In August, the 60-day delinquency rate jumped to 5.93%, higher than the peak of 5.04% in midst of the Great Recession in January 2009.

In recent months, the 60-day delinquency rate among those "in more vulnerable financial positions" has been even higher.

Here are specifics from Business Insider (April 5):

More than 9% of subprime auto borrowers -- those classified as having a higher risk of default -- were over 60 days delinquent in the fourth quarter of 2020, according to TransUnion data cited by The Wall Street Journal. That means a lot of people just can't pay off their car loans right now.

That share is the highest since 2005, just before a wave of mortgage defaults sparked the global financial crisis. Separately, 10.9% of subprime borrowers with car loans were more than 60 days overdue in February, up from 10.7% in January and a sixth straight monthly gain.

It's the latest warning sign of the uneven, "K-shaped" economic recovery from the pandemic in which low-income Americans, women, and minorities who faced disproportionate economic pain in early 2020 have lagged more fortunate Americans as the country slowly reopens. It's been visible in everything from unemployment rates to the wealth gap, and car loans can serve as critical indicators for widespread economic damage.

Aside from student loans and mortgages, auto purchases are the largest payments many Americans make. Inability to pay down loans or leases could reveal economic fragility and a looming financial crisis.

The federal government has passed more than $5 trillion in fiscal stimulus to pad against the virus' economic pain. Direct payments and expanded unemployment benefits were largely used to pay down debts, according to Federal Reserve research. A freeze to student loan payments and a federal eviction moratorium staved off other financial pressures.

Yet those saddled with car loans and leases have received little support. Such borrowers are at the whim of private banks and lenders, many of which continued to demand payments during the recession. Subprime borrowers face the greatest risk, as they tend to be in more vulnerable financial positions.