The used car market is on the brink of an auto loan collapse that can shake the entire industry.
I am shocked that more people are not talking about this!
We are facing a 2008-ish scenario in the used car market and honestly, it’s a disaster waiting to happen.
When buyers purchase a car, a vast majority (~85%) are financed. The problem is that, unlike real estate, auto loans are not subject to strict underwriting requirements allowing almost anyone to get one.
Buyers with lower credit scores were funnelled into loans with 2x interest!
You can see how crazy this is in the latest auto loan consumer reports.
– 25 to 50% of the loans were given to customers who might not be able to repay it
– Lenders only verified the source of income and employment only 4% of the time
If that’s not crazy enough, as of now, 5% of Auto Loans are behind payments and nearly half of them are underwater!
Just like how the housing market collapsed from the loan crisis in 2008, the same thing is said to be starting to happen in the Auto Loan market.
As the supply chain and chip crisis has improved from COVID times, used car prices have dropped for 4 consecutive months & are now down 6.4% since January.
This is a nightmare for the banks that have lent money on these cars, whose value is rapidly beginning to fall.
Just recently, Equifax reported that 8.5% of subprime borrowers defaulted on their car loans – the second-highest on record!
WSJ also found that more subprime borrowers have started missing out on payments as rising inflation made them choose between essentials & auto loans.
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h/t Dan
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