Auto finance should continue to reliably support auto sales in 2018, but customers should expect to make bigger down payments, according to Chicago-based credit reporting agency TransUnion.
TransUnion said it expects auto lenders to require bigger down payments, to offset greater risk associated with higher amounts financed, longer loan terms, and lower used-car values. Lower used-car values mean lenders lose more when they sell off repossessions.
Notably, TransUnion said it expects only a very slight increase in auto loans that are seriously delinquent – defined as accounts that are 60-plus days overdue, and therefore likely to be written off as bad loans – from the fourth quarter of 2017 to the fourth quarter of 2018.
That should help ease concern among some Wall Street analysts that auto loan delinquencies were on the rise, especially for customers with subprime credit.
Specifically, TransUnion said it expects serious delinquencies to account for 1.46 percent of the total outstanding for the fourth quarter of 2018, a barely measurable increase from an estimated 1.43 percent for the fourth quarter of 2017.
A year ago, TransUnion predicted a delinquency rate of 1.4 percent for the fourth quarter of 2017, a forecast that turns out to have been on the money.
TransUnion said auto lenders have slightly shifted towards a mix of lower-risk, better-qualified borrowers. “We expect this trend to continue in 2018,” the credit bureau said. “The shift in lending toward lower risk consumers will help cushion the market over the next few quarters.”