Car loan delinquency rates are rising. Account delinquency rates of auto loans 60+ days past due (DPD) rose six basis points (bps) to 1.41 percent in the third quarter of 2024 from 1.35 percent in the third quarter of 2023, according to the TransUnion Auto Credit Industry Insights Report, Q3 2024.
The increase in auto loan delinquency rates over time has resulted in tighter underwriting standards, which has led to a decrease in auto loan originations: 6.4 million in the third quarter of 2024 vs. 8.1 million in the third quarter of 2021.
Tips To Deal With Rising Car Loan Delinquency Rates
Here are 10 tips lenders can use to cope with rising auto loan delinquency rates.
|
Strategy |
Description |
Benefits |
Challenges |
|---|---|---|---|
|
Fraud Detection and Prevention |
✔ Use technology to identify suspicious activities and fraudulent applications early in the loan process. |
+ Minimizes the risk of financial loss and improves loan quality. |
− Requires investment in fraud detection tools and training. |
|
Data Analytics & Predictive Modeling |
✔ Leverage analytics to track customer payment behaviors and predict future delinquencies. |
+ Enables early intervention and targeted solutions for high-risk customers. |
− Relies on clean, comprehensive data and sophisticated analytics tools. |
|
Alternative Credit Data |
✔ Use non-traditional data, such as utility bills, rental payments, and mobile phone payments, to assess borrowers. |
+ Provides a more accurate risk assessment. |
− Requires data partnerships and new underwriting models. |
|
Proactive Communication |
✔ Reach out to borrowers early to discuss payment issues before they escalate. |
+ Builds trust, reduces delinquency, and provides a chance for solutions. |
− Requires resources to track accounts and initiate contact. |
|
Loan Restructuring |
✔ Offer loan modifications, such as extending the loan term or adjusting the interest rate. |
+ Makes payments more affordable and reduces immediate delinquencies. |
− May reduce profitability and risks repeat restructuring. |
|
Automated Payment Reminders |
✔ Send automated alerts or notifications to remind borrowers of upcoming or missed payments. |
+ Reduces the number of missed payments and keeps borrowers on track. |
− May not reach all borrowers effectively and could feel impersonal. |
|
Financial Education |
✔ Provide resources to help borrowers understand budgeting, saving, and debt. |
+ Helps borrowers avoid future delinquencies and creates long-term customer loyalty. |
− Time-consuming and may take months to see results. |
|
Customized Repayment Plans |
✔ Create personalized repayment plans based on the borrower’s financial history and current situation. |
+ Provides more flexible options and helps reduce delinquency rates. |
− Requires detailed financial analysis for each borrower. |
|
Outsourcing Collection Efforts |
✔ Engage third-party collection agencies to recover debts in case of non-payment. |
+ Provides expert collection processes and better recovery rates. |
− May damage customer relationships. |
|
Real-Time Data Monitoring |
✔ Use real-time monitoring to track financial transactions, spending patterns, and payment behavior. |
+ Quickly identifies changes in borrower financial health, allowing for early intervention. |
− Costly to implement and may raise privacy concerns. |
By leveraging these strategies, lenders can reduce the impact of increasing car loan delinquencies while offering more personalized, data-driven solutions to borrowers and managing risk more effectively.
Good Times or Bad
Concern with delinquencies varies by lender; lenders who assume risk in subprime markets tend to be primarily concerned. As can be seen by the data, delinquencies are not exclusive to subprime market segments. All lenders—banks, credit unions, and finance companies—can benefit from fintech advancements that help reduce auto loan delinquency rates. In good times and bad, reducing delinquency rates is always a best practice.
Getting Started
defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi loan origination solutions, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on car loan delinquency rates, contact our team today and learn how our cloud-based loan origination products can transform your business.
