Auto Loan Defaults Rise in July
Consumer credit defaults remained relatively stable in July, according to data from S&P Dow Jones Indices and Experian. The on exception were auto loans, which showed an increase in defaults.
NEW YORK — Consumer credit defaults were relatively stable in July, according to data from S&P Dow Jones Indices and Experian. Auto loans defaults saw the only increase during the month.
The composite rate posted a 0.92% default rate in July, one basis point down from the previous month. The first mortgage default rate was unchanged from the prior month with a rate of 0.80%. The auto loan default rate reported 0.86%, a one-basis point increase from the previous month. The bank card default rate fell nine basis points, reporting 2.79% in July. The second mortgage default rate was unchanged from the previous month, reporting a default rate of 0.55%.
Four of the five major cities saw their default rates increase in the month of July. Chicago saw the biggest increase, reporting 1.15%, up 11 basis points from the previous month. Miami reported a default rate of 1.45%, up three basis points from June. Los Angeles and New York both recorded default rate increases of one basis point over the previous month, at 0.89% and 0.92%, respectively. Dallas was the only city in July to record a lower default rate compared to the prior month, reporting a 0.64%, down four basis points.
“The stable consumer credit default rates confirm the recent economic improvements seen in the unemployment rate and GDP growth,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Recent increases in outstanding consumer credit combined with stable default rates and strong consumer sentiment point to stable individual financial conditions.
“However, wage increases are running at about 2% annually — or under 1% after inflation — which means that there is little margin for error should the economy stumble,” he added. “At the same time, concerns over the impact of an expected Federal Reserve rate increase are exaggerated. Interest rates on consumer loans are unlikely to be affected and no immediate economic fallout is anticipated.”
Default rates across different loan types are following a similar pattern: Bank card defaults are about two percentage points higher than auto loans or mortgages. According to Blitzer, this pattern has been in place throughout the history of the indices and is unlikely to change.
“Even the increase in the default rate for automobile loans was a scant one basis point. Chicago did see a small bump up in defaults, bringing rates to levels seen at the start of the year,” the executive noted. “However, given overall patterns, this is not a major worry. All five of the cities covered in the release have put the financial crisis behind them and are all at pre-crisis lows. The lack of any regional differences is another sign of improving individual financial conditions and a stable economy.”
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