Banks Pull Back on Car Loans as Used-Auto Prices Plummet

Banks are seeing an increasing number of borrowers defaulting on auto loans which may result in a declining auto sales market.

In recent years auto sales have relied heavily on the flow of easy credit. Now, subprime borrowers have fewer loan options and face higher interest rates. This is being felt at dealerships, especially with used cars.

Banks are posting higher losses on defaulted auto loans, hit by a mix of more borrowers falling behind on payments and the declining value of used cars.

“A very accommodating finance environment had been in place for some time,” said Bruce Clark, lead auto analyst and senior vice president at Moody’s Investors Service.“What you’re seeing right now is a pullback and the resulting pressure on unit vehicle sales.”

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