The auto loan industry is massive and chances are that if you are a financial institution, you are also in the auto loan lending game. For the first time in first-quarter history, open auto loans have surged past $1 trillion per market research firm, Experian Automotive. Due to their findings, they have advised lenders to “keep a close eye on delinquency trends to ensure the market remains healthy.” Should consumers keep making timely monthly payments, the market has a greater chance of maintaining affordable financing options. While auto loans can offer profitability for a financial institution, there are also some downfalls and risk when it comes to the lending industry. In recent years, the auto-loan industry has seen a rise in delinquencies. And, of course, this is never a good thing for financial institutions.

When borrowers can’t afford to or don’t make their auto loan payments on time, it can take a toll on a lender’s bottom line. According to the Q4 2016 Industry Insights Report by TransUnion, the auto delinquency rate reached 1.44% to close 2016, a 13.4% increase from 1.27% in Q4 2015. Auto delinquency is at its highest level since the Q4 2009 reading of 1.59%. But, these trends are not limited to the auto industry; delinquencies are on the uptick when it comes to credit cards as well. So, what does this mean for financial institutions? It means that no matter how diligent or conservative your lending practices may be, it is inevitable that some borrowers will default on their loans.

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