Americans Take Loans for Cars and Education
Over 1 million of Americans are delaying payments on car loans for 2 months or over, the share of overdue loans has peaked since 2009. The US car loan market in 2016 grew by $93 billion to $1.16 trillion (data from the Federal Reserve Bank of New York). On average, borrowers owe $18,400 on car loans (+ 10% by 2013).
The car loan market has been heating up for some time. It’s obvious that problems will begin with the quality of loans. According to statistical data, investors for a long time did not pay attention to the quality of loan portfolios, because the growth in the share of overdue loans appeared not so long ago.
The share of overdue car loans in 2016 increased by 13 pp to 1.44% (compared with 1.79% for credit cards and 2.28% for mortgage loans). Banks are in no hurry to get nervous. First, a car is a liquid asset, which is easier to sell than housing. Secondly, personal transportation is a necessity in the USA, therefore car loan servicing is a priority for Americans.
According to the bankers interviewed, they are pleased with the quality of their car loan portfolios, especially since they are less likely to issue the most risky loans. For example, Santander Consumer USA, specializing in subprime car loans, in the fourth quarter of 2016 reduced the issuance of new loans by a quarter due to the “warming market”. Nevertheless, in the IV quarter, $142 billion of car loans were issued in the USA – this is a record for 18 years.
Another rapidly growing segment of the US loan market is education loans. Over 10 years, it has grown from $500 billion to $1.3 trillion. According to the Federal Reserve Bank of New York, this market has been growing for 18 consecutive years – there was no decline even in the 2008 crisis. But there are more overdue loans in this segment. Despite the efforts of the administration of ex-president Barack Obama to make education loans more affordable, about a quarter of debtors either stop servicing the loan or are late with payments for 3 months or over. The US government guarantees 90% of student loans.
During the election campaign, US President Donald Trump compared student loans to a “heavy load,” preventing Americans from moving forward.
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