While the subprime mortgage bubble is simmering, the subprime auto loan meltdown has begun. Over the past decade, auto lenders have been willing to lend money to people who are poor credit risks, can’t provide proof of steady income, and purchase vehicles beyond their means. This strategy was profitable and worked in the beginning- but now the economic reality is setting in. Delinquency rates have doubled and major auto lenders are preparing for millions in losses.
Many auto loans, like mortgage loans, are securitized and the risk is passed down the road while the manufacturer services the loan. Over the past year the auto loan bubble exceeded one trillion dollars in debt on new and used vehicles. Both 30 and 60-day delinquency rates rose in the second quarter according to the nation’s credit bureau reports.
The total outstanding loan balance exceeded 1 trillion dollars between April 1st and June 30th…
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