Increase in auto loan delinquency primarily witnessed in subprime borrowers

The subprime tier, which accounted for 12.3 percent of account volume in Q1 2021 and 12.9 percent in Q1 2022, experienced a decline during the pandemic. However, it has since seen a recovery to 14.2 percent in the first three months of this year, although still lower than the pre-pandemic level of around 15 percent.

TransUnion/S&P Global Mobility AutoCreditInsights reports that the high delinquency rate has prompted captive finance companies, banks, credit unions, and independent lenders to tighten their underwriting standards. Coupled with elevated interest rates and decreased used-car inventories, loan originations have decreased, with S&P Global Mobility indicating a 15.3 percent decline in the fourth quarter of 2022 compared to the same period in 2019.

However, it’s not all gloom and doom for auto loans.

In terms of vintage performance, which measures the loan account’s performance over a specific period after origination, the new-vehicle segment demonstrates relative strength. Recent vintages are performing better than pre-pandemic portfolios at the same age, reaching pre-pandemic lows, according to S&P Global Mobility.

“While closely monitoring delinquencies, we are also observing positive indicators in vintage data,” stated Satyan Merchant, the Senior Vice President and Automotive Business Leader at TransUnion.

Regarding used vehicles, the first half of 2022 saw elevated delinquency rates for vintage accounts ranging from five to 10 months from origination compared to previous years. However, in the second half of the year, rates gradually returned to pre-pandemic levels, as reported by S&P Global Mobility.