Millions of deferred car loan payments during COVID closure; Most landed on their feet

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Millions of borrowers have taken advantage of pandemic-inspired proposals from auto lenders about “financial difficulties” last year to postpone payments on their car loans, a move that turned out to be less risky than it looks, according to a study by the credit bureau. TransUnion

The vast majority of these bills remain current and paid on time – a sign that the economic impact on auto lending has not been as great as lenders feared.

“There was so much unknown in the early days of the pandemic,” said Matt Komos, vice president of research and consulting for TransUnion in Chicago. “At an unknown time, he served as a protective barrier.”

For example, Ally Financial Inc., a major auto lender, separately reported that contributing to COVID-19 aid accounted for about 30% of its consumer car loans, or 1.3 million bills as of May 2020.

According to the bank, about 99% of them expired by September 30, 2020. About 89% were current or fully paid; 8% were overdue or written off, and only 3% expanded their participation.

A TransUnion study found that 70% of consumers with subprime loan, and 80% of high-risk consumers made payments to the poor when they were enrolled in such programs. In addition, more than 40% of accounts in these programs were closed within the first three months of signing in.

TransUnion said that nationwide, the percentage of auto loan accounts in “financial distress” stood at 7.04% of the total as of May 2020, up from 0.64% in March 2020.

As of May 2021, the percentage of financial difficulties remains elevated – 2.09%, but this is only a small part of what it was a year ago and is likely to decline further, Komos said in a telephone interview.

“These numbers should continue to decline … to pre-pandemic levels, I guess that’s what usually happens,” he said.

“Although the overall economic recovery has been quite strong, there are still areas where unemployment is still higher and consumers are still struggling to find work. Or maybe they are working on an hourly basis and they have not returned to their previous hours, ”Komos said.

Meanwhile, he said, many more consumers who participated in proposals for financial hardship left the program and did not return.

This means that many borrowers who took advantage of the opportunity to defer payments were not really needed due to economic necessity.

Komos said it was 20-20 hindsight. “There was a certain group of consumers who didn’t really ‘need it,’” he said. “But they did it with care.”

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