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Car redemptions are on the rise, and financial analysts fear the trend will continue, according to a report.
The auto loan industry looks very different from when the pandemic began, when Americans were given a boost by stimulus checks and lenders were more willing to accommodate arrears, reports NBC News.
The number of people who are behind on their car payments has approached pre-pandemic levels in recent months. Among the lowest-income consumers, the loan default rate now exceeds 2019, according to data from rating agency Fitch.
The trend is expected to continue into 2023 as economists expect unemployment to rise, inflation to remain high and household savings to fall.
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Recovery agent or ‘repo man’ Todd O’Connor lifts a car for towing while repossessing vehicles in the early hours October 12, 2012 in Oneida, New York. O’Connor, who works for Advanced Recovery of New York, works with other agents day and night l (John Moore/Getty Images/Getty Images)
The average monthly payment for a new car has increased 26% to $718 a month since 2019, the report said. Nearly one in six new car buyers spends more than $1,000 a month on vehicles, and the costs associated with owning a car, including insurance, gas and repairs, have skyrocketed.
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“These redemptions are for people who could afford that $500 or $600 a month two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at car buying website Edmunds. “This is where we start to see the withdrawals, because it’s just everything else that’s nailing you.”
Some noted that the number of repos increased earlier this summer. Joey Poliszczuk runs Hoist Towing & Recovery and Gorilla Towing & Recovery in the Phoenix area. He told FOX 10 back in July that he believed the unstable economy would cause garnishments to continue rising.
FILE – In this file photo dated March 24, 2021, full-size mid-size pickup trucks and vans are seen in a parking lot in front of a General Motors assembly plant where they are manufactured in Wentzville, Missouri. The global shortage of computer chips forced automakers (` Photo/Jeff Roberson, File/Associated Press)
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“The rate of defaults and seizures is not expected to reach the levels seen in 2008 and 2009, when there was a spike caused by the financial crisis. The percentage of auto loans that were 30 days past due was 2.2% in the third quarter, compared to 2.35% past due for the same period in 2019, according to data from Experian. In contrast, just over 4% of auto loans defaulted in 2009,” NBC News said.
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