The number of auto loan delinquencies are increasing, in part because of lower inventories, higher prices for new cars as a result of the chip shortage, reduced demand, inflation, and the end of loan-accommodation programs established during the COVID-19 pandemic to protect consumers from having their vehicles repossessed.
In addition, plummeting prices for used cars will likely cause borrowers to stop paying on their loans and let lenders repossess their vehicles if they owe more than they're worth.
The percentage of loans that are more than 60 days past due rose to 1.65% in the third quarter of 2022—the highest percentage for 60-day delinquencies since 2010, according to a TransUnion report. Among these delinquencies were approximately 200,000 auto loans that previously took advantage of pandemic-era accommodation programs.
While inflation and higher interest rates are forcing many borrowers to extend the terms of their loans to no less than seven years, low unemployment has kept delinquency rates somewhat in check, according to Satyan Merchant, senior vice president and auto business leader at TransUnion.
However, the TransUnion report indicates that borrowers are still prioritizing paying their auto loans. In fact, consumers put making auto payments just behind paying their mortgages and well above paying off their credit cards because they want to "protect secured products with positive equity."
"As the economic environment continues to evolve, lenders can prepare themselves for an array of possible scenarios so trends can be spotted and decisions made to best manage their portfolios," Merchant said. "Enriched data and analytics can help lenders identify areas of existing and emerging risk and opportunity as well as better understand customers' behavior."
How MeridianLink Can Help Auto Lenders With Delinquencies
MeridianLink® Collect provides numerous solutions to help lenders keep up with auto loan delinquencies and catch borrowers before they become delinquent on their loans.
For example, White Sands Federal Credit Union (WSFCU) and Franklin Mint Federal Credit Union (FMFCU) are using MeridianLink Collect to help boost their collections strategies and handle the uptick in auto delinquencies.
These credit unions have been anticipating the current increase in delinquencies, and they expect this trend will continue in 2023, particularly in light of holiday spending, inflation, and other factors that cause borrowers to become delinquent. These financial institutions have also observed an increase in the number of members looking for assistance with payments and asking staff members to help them understand the delinquency process.
To deal with these issues, WSFCU and FMFCU have come up with innovative ways to benefit consumers while continuing to comply with ever-changing guidelines. For example, to slow overall delinquency rates, these institutions have been reaching out to offer assistance to borrowers whose accounts are no more than one month past due.
Still, WSFCU and FMFCU have had their challenges, including dealing with skip tracing issues when they try to contact delinquent auto borrowers. These issues are made more difficult because the credit unions are operating with fewer staff members, making it hard to get ahead of early-stage delinquencies.
But the good news is that technology can help these collections efforts run more smoothly.
Tools To Handle Delinquencies More Effectively
A top priority for any collector is getting in touch with debtors, as doing so can enable them to recover their debts or enter into payment arrangements more quickly. But this is easier said than done. Contacting debtors can be challenging, particularly when collectors have limited contact information or the contact information they do have is out of date, which significantly reduces the chances of ever contacting these delinquent borrowers.
Adopting omnichannel communication methods has been critical in helping these credit unions stay in contact with delinquent accounts to comply with regulations. As such, MeridianLink Collect debt collection software now includes skip tracing to help create a more-effective approach to communications and collections.
To that end, MeridianLink Collect integrates with the LexisNexis® skip tracing debt collection tool that enables lenders to locate debtors quickly by helping them find critical details: new addresses, workplaces or business names and locations, first- and last-seen dates, and known relatives and associates.
These integrations are part of the reason the collections teams at WSFCU and FMFCU selected MeridianLink Collect to help their staff members manage their delinquent accounts. Implementation was fairly simple since the software integrated with their systems of record and many of the credit unions' existing programs.
MeridianLink Collect also includes workflow automations to reduce manual tasks in addition to customizable queues that let employees divide up cases so they can identify compliance risks or target borrowers in early-stage delinquency. MeridianLink Collect also helps staff members easily manage shifting regulations with built-in practices that comply with guidelines, such as those outlined by the Fair Debt Collection Practices Act and the Servicemembers Civil Relief Act.
Stay Tuned for More News About Auto Loan Delinquencies
Stay tuned, because there's something new coming from MeridianLink Collect that will further enhance your bank, credit union, or lending institution's ability to keep up with auto loan delinquencies. In the meantime, check out our recent webinar on how debt collection software can better support your staff.