News on auto loans points to more responsible consumer behavior
August 30, 2010
| MoneyRates.com Senior Financial Analyst, CFA
There's been a shortage of happy economic news lately, so a report on auto loans came as a welcome surprise. According to a study by credit reporting bureau TransUnion and reported by the Associated Press, the percentage of auto loans that were late by 60 days or more dropped to 0.53 percent from 0.73 percent a year earlier.
What's so great about that? It shows consumers are getting better control of their debts.
Auto loan data indicate strengthening household finances
The drop in delinquencies on auto loans is just one indication that consumers are improving their financial conditions. Lower delinquency rates on auto loans is part and parcel with a trend that has been emerging of late. Credit card balances are down. Household debt service ratios are down. People are getting out from under the mountain of debt that has been built up over the past decade.
This emerging pattern shows that we're not in for a quick fix. The Federal Reserve's actions--lowering interest rates to stimulate more borrowing--is a quick fix for the economy, but it's also a dead end. The last economic recovery was essentially built on increased borrowing, and look how that turned out.
A more solvent consumer would be the basis for a more sustainable recovery. It's a slower cure, but in the long run, stable households carrying less debt may best for what ails the U.S. economy.
The auto loans news is an indication that help is on the way, eventually. A stronger economy would mean more demand for loans, and it would also mean that the Fed could stop artificially driving market interest rates downward. Both would mean better money market rates, CD rates and savings account rates.
Richard Barrington
5 October 2010 at 4:28 am
Since I first wrote this, I've continue to see indicators that consumers are paying down debt. As "Auto Loans" says, this is the basis for a more sustainable recovery, and my guess is that it will also translate to a less stressful lifestyle for consumers.
Auto Loans
4 October 2010 at 6:41 pm
It's a good thing that consumers nowadays are getting to be more responsible in controlling their debts.. I agree that a more solvent consumer would be the basis for a more sustainable recovery. It’s a slower cure, but in the long run, stable households carrying less debt might be best for the ailing U.S. economy.