Why Subprime Loan Borrowers Are Missing Car Payments
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Here's your Money Briefing for Tuesday, April 6th. I'm J.R. Whelan for The Wall Street Journal. Coronavirus relief measures like mortgage and student loan deferment have freed up cash for millions of Americans, but there's been no such relief for car payments, and that's hurt some people more than others.
Who is affected by rising delinquencies on subprime auto loans?
So you have people with good credit who are doing very well with their auto loans. There really aren't any red flags there. But yet the story with people who have credit scores that are 600 and below is so different. I mean, the difference is stark. And it raises the questions of, well, why is the performance so different? What is going on here?
Anna Maria Andriotis covers consumer credit for us. Coming up, she'll explain what's contributing to subprime borrowers' struggles and what the outlook is like going forward. That's after the break.
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Before the pandemic, Americans who were deemed to be risky borrowers were able to secure subprime auto loans. Now, a year into the pandemic, personal finance struggles are making many of them miss their monthly payments. So is there any relief available? And what happens next? Our reporter Anna Maria Andriotis has been following this issue, and she joins me now to discuss. Anna Maria, thanks for being here.
Great to be speaking with you.
So Anna Maria, can you just first define who we're talking about here? Which particular segment of car loan borrowers are falling behind on their payments?
So what we're looking at here are borrowers who have low credit scores, generally between 300 to 600. This is on a scale that taps out at 850. Credit reporting firms and many lenders define people as being subprime borrowers. when they have credit scores that are in this range. And what we're seeing is that these borrowers are performing very differently with their loans than people with higher credit scores, specifically that a greater share of people with low credit scores are falling behind and that that share is increasing and has been increasing now for several months.
Now, the government has tried to help people stay afloat through things like stimulus payments and loan forbearance and eviction moratoriums. So why is this segment of auto loan holders in trouble?
There has been a big difference between the relief offered to people who have mortgages and student loans than those who have auto loans, credit cards, and personal loans. And it's important to point this out because it really kind of is the foundation in part for what's going on right now with subprime auto loan borrowers. So a federal law that went into effect last year at the beginning of the pandemic essentially requires that that people who have federally backed mortgages or federal student loans, that they can get relief in the form of forbearance or deferment, and that they could get that relief for a long time. Many of these people are still in
Why are subprime borrowers missing car payments during the pandemic?
some type of forbearance program that does not require payments.
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