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Decline in auto payment delinquency is good news for lenders

Sep 26, 2013 Philip Burgess

Short term lending outlets and other auto financiers are seeing their fortunes improve due to a drop in auto loan delinquency rates. Over the last year, the economy has experienced a notable rebound, as consumers have increased their purchasing activity and showcased an ability to stay on top of payments.

As a result of this new-found financial responsibility many Americans are adopting, it's little surprise that recent TransUnion data showed that the 30-day late payment rate for auto loans has decreased since 2009. At that time, 1.34 percent of auto loans were delinquent by at least 30 days. TransUnion found that mark retreated to just 0.88 percent last year.

What's more optimistic for auto lenders is that car loans appear to be one of the least risky credit mediums. The source indicated that the late payment rate for auto lending products is less than the tardy rate for credit cards and mortgages. Even more reassuring is that the source found that changing consumer behavior has swung in the favor of auto financiers, as consumers are more likely to pay auto loans before mortgages or credit cards.

"Our latest study indicates that, for the first time since the housing bubble, consumers with constrained liquidity are making their mortgage payments about as much as their credit card payments, though auto loan payments remain the top priority," said Steve Chaouki, vice president of TransUnion.

The development has allowed many lenders to approve the loan applications of subprime lenders, a sign that financial institutions are in a solid state because they are more willing to extend riskier loans.

Earlier this month, Reuters reported that American banks increased the number of subprime auto loans made in the second quarter of 2013. Lenders who want to enter the subprime market should consult with financial support enterprises that offer products and services that can help banks and other firms limit the risk associated with the subprime market.