The good times of easy credit seem to be coming to an end as subprime borrowers fall further and further behind on payments. That dreaded trend is playing out across debt ranging from car credit to car loans. According to Equifax, auto loans hit 8.8% in February, a 15-year high.
The Wall Street Journal reports that many people have actually increased their savings and paid off debt during the pandemic, thanks in part to stimulus payments and the child tax credit (which again proves that, just one little space, most lower income people act responsibly, pay their bills and save). But that short-term trend, coupled with banks’ desire to get the economy moving again, has led to easy lending.
That breathing room is long gone. Despite strong employment and rising wages, consumers are being affected by high gas prices, car price, housing costs and general inflation across the board. And that worries the banks – not about the happiness of the people, of course, but about their ability to get paid. By WSJ:
Some lenders are also more concerned about the ability of consumers to keep up with payments as some of their financial gains, including excess savings they have accumulated in the early stages. of the pandemic, gradually decreasing.
Wells Fargo & Co.’s CEO Charlie Scharf. said on Tuesday that higher food and gasoline prices would constrain American households. “We’re still in the best credit environment we’ve ever seen in our lives,” Scharf said at The Wall Street Journal’s Future of Everything Day. However, he added, “There will be a decline in people’s ability to pay.”
Subprime lending hit a record last year, driven by pent-up consumer demand and high employment. As always happens with subprime lending, what goes up must inevitably go down. Lenders aren’t really worried. Fewer Americans still have “subprime” credit scores today than they did when the pandemic began: 18.6% before 2020, 15.5% now. Bank officials told the WSJ that the current breach rate is a market correction from artificially low levels.
Subprime lending is often predatory and puts the desperate poor in an impossible position. However, it’s a business that won’t disappear anytime soon because of subprime lenders earn money whether the borrower pays or defaults.
