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Extended Auto Loan Terms Result in Higher Delinquencies
Friday, July 22, 2016 6:40 AM

A recent study conducted by TransUnion paints a worrying picture for certain sectors of the auto lending industry. The research by the credit information giant found that longer loan terms coincide with more risk and delinquency.

In the study, TransUnion found that subprime auto loans in the 84-month term category have a delinquency rate of 30.7 percent. While this is not an area normally captured by the credit union industry, the numbers are still growing for the longer-term loans in the prime and super prime risk categories.

"Some people have talked about the possibility of a bubble in the auto arena," said Mike Schenk, vice president of economics and statistics at CUNA, "[It] may be true in the broad marketplace, the loans we see CUs originating are high quality loans and are being paid off in a timely manner."

The delinquency rate for 60-month super prime loans is 0.4 percent, according to TransUnion, and this number more than doubles to 0.9 percent when the loan term is increased one year to 72 months. When the loan term is increased to 84 months the delinquency rate doubles to 1.8 percent.

Read more at Credit Union Journal.