By OptioWPAdmin
December 20, 2016

Auto Debt Collections: Delinquencies on the Rise

Earlier this week, TransUnion published an article forecasting higher 2017 delinquency rates for auto loans that will pose greater challenges for auto debt collections. The expected delinquencies are “still far below recession levels,” but auto lenders will be well served by an organized collection effort that allows them to remain in front of the expected rise in delinquencies.

The forecast is based on economic assumptions including gross domestic product, home prices, personal disposable income and unemployment rates. TransUnion believes its forecast is subject to change for better or for worse per macro-economic factors such as decreased home prices or unemployment.

“An increase in subprime lending has begun to impact delinquency levels for some industries, specifically the auto finance and credit card markets,” said Nidhi Verma, senior director of research and consulting in TransUnion’s auto debt collectionsfinancial services business unit. “Our forecast also takes into account an expected 50-basis point aggregate increase in the prime interest rate beginning this December and continuing through the end of next year. The combination of these elements are key drivers of the expected delinquency rate increases.”

The Wall Street Journal expressed similar concern for the increase in delinquencies resulting from subprime auto loans in its November 30 article, “Delinquencies Rise on Growing Volume of Subprime Auto Loans.”

2017 auto debt collections by the numbers:

• Delinquencies are expected to increase to 1.40% (21.3% higher than 2012 rates).
• The 1.40% delinquency rate is approximately 13.5% less that the 2009 rate of 1.59%.
• The average loan debt per borrower was $14,922 in 2009 and is forecast to reach $18,840 in 2017.

“Greater access to auto loans for non-prime consumers suggests that lenders have made deliberate decisions to accept more risk from non-prime loans in their portfolio,” said Jason Laky, senior vice president and automotive and consumer lending business leader for TransUnion. “An increase in delinquency is the natural consequence of that strategy. … We do not expect to see a surge in auto delinquency unless there is an economic shock.”

auto debt collectionsLaky also believes that consumers are motivated to pay their auto loans before other debt because transportation is an integral factor in maintaining employment for many consumers, a point underlined by TransUnion’s 2011 study.

Optio has considerable experience in auto debt collections, and stands ready to assist lenders by establishing realistic payment plans that satisfy consumers and lenders alike. The agency addresses specific consumer concerns as it negotiates terms within their means, encouraging them to remain loyal to the brand.

Optio’s proven approach to collections is underlined by advanced technology, the latest in data security, full legal compliance and certified collections professionals. Learn how Optio can create an individualized program for your organization by contacting us today.

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