The Wall Street Journal reported, “Consumers with low credit scores are falling behind on car loan, personal loan and credit card payments, a sign that the healthiest consumer lending environment ever registered in the United States is coming to an end.
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Some Americans have seen their savings improve in the first year of the COVID-19 pandemic. Unemployment soared, but government stimulus payments and the short-term child tax credit created new financial leeway for those who remained employed.
As a result, Equifax said, fewer Americans have subprime credit scores — scores below 600 — today than in 2020. In November, auto loans were as easy to get as they were before. the start of the pandemic. But, amid worries about a recession, subprime borrowers are starting to fall behind on rising payments.
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Car loan and lease arrears hit a record high in February, Equifax said, with 8.8% of borrowers 60 days or more behind on payments. The total fell slightly for March – the most recent month for which data is available.
But gasoline prices began their current spike that month, raising alarm that fewer Americans would be able to keep up with their payments. Inflation concerns led the Federal Reserve Board to pass its biggest interest rate hike in 22 years earlier this month.
Every 1 point increase in interest rates increases the average monthly car payment by about 3%.
Related: What the Fed’s interest rate hike means for car buyers