Sub-prime Auto Loan Delinquency Rates Rise in February

According to Deutsche Bank and Fitch Ratings, more sub-prime borrowers are falling behind on their auto loans. In February, the delinquency rate for subprime auto loans more than 60 days past due rose to 4.15%, the highest since April 2020 according to Deutsche Bank. 

Fitch Ratings also tracked February subprime auto ABS delinquencies at the highest since April 2020, but at a near 4.8% rate. 

Despite the rising trend, the delinquency rate was over 5% before the pandemic and all of the government stimulus kicked in.  

“Certainly, spending power from what we are seeing on inflation could leave the subprime borrower more vulnerable,” said Margaret Rowe, senior director in Fitch’s asset-backed securities group. “We were expecting to see delinquencies normalize or come back to those pre-pandemic levels.” 

Auto lenders often move quickly to repossess vehicles when a borrower falls behind on payments.  

“We believe inflation is more likely to impact subprime borrowers due to lower incomes and/or savings,” BofA Global’s strategy team wrote, in a weekly note. “This leaves the subprime auto loan ABS and consumer loan ABS sectors more vulnerable to credit deterioration, which could add pressure to ABS valuations in the coming months, especially at the subordinated level.”  Source