A map of auto loan debt across the U.S.
The geography of auto loan debt across the U.S. Urban Institute

A new tool by the Urban Institute maps the geography of car loan debt and delinquency.

There’s a reason cars can symbolize the American dream. In most places in the U.S., a vehicle doesn’t just open up access to new destinations, but to better economic opportunities.

But even as the American dream has become increasingly elusive—and perhaps because it has become so—Americans cling to their vehicle-owning aspirations. They are taking out car loans at record levels—despite high interest rates. And many are not able to maintain timely monthly payments, driving up delinquency rates.

A new interactive map by the Urban Institute reveals the geography of auto loan debt and delinquency at the state and county level, and makes clear who is bearing the brunt of this burden, and where.

The topline finding: For whites, that share of auto debt is slightly higher than the national average, whereas for people of color, it’s lower. But when it comes to loan delinquency, that dynamic flips. Among white Americans, the delinquency rate is 3 percent—slightly below the national rate at 4 percent. For people of color, it’s more than double, at 7 percent.

“What’s much more interesting in the map is not who has the loan, but who’s in trouble with it,” said UI’s Signe-Mary McKernan, a lead researcher for the study. That, she said, should prompt policymakers to ask, ”What are the barriers here? What’s going on? Why are these higher? Is it that there are predatory practices in these communities?”

The ability to pay back car loans seems to depend on where the person lives. If you look at the map, the share of auto/retail loan delinquency in Alabama (9 percent), South Carolina (8 percent), and Texas (7 percent) is much higher than in, say, Maine (2 percent). The two counties at the top of the list in terms of delinquency rate are in Texas: Hidalgo and Cameron counties, each with a striking 14 percent share of borrowers who were at least 60 days overdue on their loans.

A small data note to keep in mind: Due to the way the credit bureau data are categorized, auto loans come clumped together with retail loans (which help pay for electronic appliances or furniture) for the purpose of calculating delinquency rates. But according to UI, that doesn’t drastically skew the analysis: Around 77 percent of those with installment loans have an auto loan or lease:

The geography of auto loan delinquency rates
(Urban Institute)

One theory for the geographical disparity is that the places with high delinquency rates have a high concentrations of subprime borrowers—people with low credit scores who may pose a greater risk of defaulting. But upon examining delinquency rate in this group, disparities remain. Nationally, that share is 13 percent, but in Alabama—the mecca for subprime auto and retail delinquency—it’s 21 percent rate. In Houston County, Alabama, that share goes up to 27 percent.

The subprime delinquency rate is also marred by geographical disparity.
The auto delinquency rate among subprime borrowers is also rife with disparity. (Urban Institute)

Recent dire warnings about practices in the subprime car loan industry have drawn comparisons to the 2008 mortgage crisis. In an interview with Bloomberg TV in 2017, investor Steve Eisman—who famously profited off the financial crisis by betting against the market—singled out the auto loan industry. “We are in an environment where credit quality has never been this good in anyone’s lifetime, with the one exception of subprime auto,” said Eisman.

Those lending patterns are now being repeated: Many Wall Street lenders have been pushing auto loans aggressively on subprime borrowers on iffy terms. These loans are then spun up into bonds and sold to investors hungry for auto-loan-backed securities.

For subprime borrowers, this is a trap. Drivers with low credit scores are being charged higher interest rates, which means heftier monthly payments. Some dealers may add on incentives and roundabout terms that may seem to sweeten the deal upfront, but end up being more burdensome in the long run. The consequence: The need to stay on the road drives a vicious cycle of financial insecurity. The borrower may not be able to keep up with the payments, and once they become delinquent, they may have their car repossessed, or even be sued by the lender. Predatory auto loans may not trigger a national financial crisis—auto loan debt is much smaller than mortgage debt—but they can set off individual ones.

And, just as with predatory subprime mortgage lending, the subprime car lending practices bring disproportionate suffering to certain pockets of the country.

“I think we’ve learned a little bit from the mortgage crisis about poor products targeting certain communities, and we just want to look carefully at what’s going on,” McKernan said. “A lot more than the car is at stake.”

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