Millions of borrowers took advantage of pandemic-inspired “financial hardship” offers from auto lenders last year, to postpone payments on their auto loans, a move that turns out to have been less risky than it appears, according to research from credit bureau TransUnion.
The vast majority of those accounts remain current and paid up-to-date — a sign that the economic impact on auto loans wasn’t as great as lenders had feared.
“In the early days of the pandemic, there was so much that was unknown,” said Matt Komos, vice president of research and consulting at Chicago-based TransUnion. “It served as a protective barrier at an unknown time.”
For example, Ally Financial Inc., a major auto lender, reported separately participation in COVID-19 assistance peaked at about 30% of its consumer auto accounts, or 1.3 million accounts as of May 2020.
About 99% of those had expired by Sept. 30, 2020, the bank said. About 89% were current or paid in full; 8% were delinquent or charged off, and just 3% had extended their participation.
TransUnion’s research found that 70% of consumers with subprime credit, and 80% of prime-risk consumers made payments on hardship accounts while they were enrolled in such programs. Additionally, more than 40% of accounts in these programs exited within the first three months of entering.
TransUnion said that nationwide, the percentage of auto loan accounts in “financial hardship” status was 7.04% of the total as of May 2020, up from just 0.64% in March 2020.
As of May 2021, the percentage in financial hardship remains elevated, at 2.09%, but it’s a fraction of what it was a year ago, and it will likely subside further, Komos said in a phone interview.
“These numbers should continue to come downward … to pre-pandemic levels, I would guess is what it would typically hit,” he said.
“While the overall economic recovery has been pretty strong, there are still pockets where unemployment is still higher, consumers are still struggling to get jobs. Or maybe they’re an hourly worker, and they’re not back to their previous hours,” Komos said.
Meanwhile, many more consumers who participated in the financial hardship offers exited the program and haven’t returned, he said.
That implies that many of the borrowers who took advantage of the ability to postpone their payments didn’t really need to, out of economic necessity.
Komos said that’s 20-20 hindsight. “There was some subset of consumers who didn’t totally ‘need’ it,” he said. “But they were doing it from a cautious perspective.”