More car owners behind on auto loans

Consumers straining to meet household expenses are taking longer and longer to make their car payments, increasing the risk they'll default on those loans and potentially making it harder and more expensive for everyone else to get car loans. Car loans that were 60 days past due — and likely to soon go into default — were up 17% in the fourth quarter, says Experian Automotive credit tracking. And the share of loans 60 days past due is expected to be up 40% by December, compared with the share in December 2007, TransUnion Credit says.

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Even with the increases, 60-day delinquent loans remain only about 1% of outstanding loans. But any rise is bad news for buyers, who've already seen lenders tighten standards. They are less willing to lend to subprime customers and asking for larger down payments even from customers with solid credit histories. Lenders are also less willing to issue loans that are for more than a car is worth — a practice that had been common this decade as buyers traded cars on which they still owed money and wrapped that amount into their new loan.

"A lot of lenders made changes in 2008 to their lending practices," says Melinda Zabritski, director of automotive credit for Experian Automotive. "I expect to see that holding steady for the rest of this year."

Experian says 60-day delinquencies are highest in Mississippi, the District of Columbia, Alabama, Georgia and South Carolina. Delinquencies are lowest in North Dakota, Arkansas, South Dakota, Montana and Wyoming. Buyers in those areas tend to borrow less, says TransUnion, and are more likely to make their payments because they rely more on their cars.

The average loan for a new vehicle was $24,444 in the fourth quarter, down $338 from the first quarter of last year, Experian says.

Auto sales have taken a beating in recent months, down 39.4% year-to-date. Rebates and incentives are up 7.1% through the end of February, according to industry tracking firm Autodata, as the automakers attempt to lure more buyers into showrooms.

But the cost of financing could soon start rising, says Pete Turek, automotive vice president in TransUnion's financial services group. Typically, lenders try to make up money they lose in delinquencies and repossessions by raising other customers' costs.

Says Turek, "When there's higher losses in an industry, the lenders will charge higher rates to account for those losses."