Car sales have hit record levels in America, helped by record lending, says Serena Ng in The Wall Street Journal. The total volume of American car loans has hit a new peak around $1trn. And where there's record lending, as we learnt in 2007, there is often careless lending.
As with subprime mortgages, car loans are often bundled and sliced and diced into new securities. "Bonds backed by auto loans made to riskier borrowers [have] proved to be a sweet spot for yield-seeking investors" in today's low-rate environment, says Bloomberg.com's Tracy Alloway.
But it now seems "the chickens [are] coming home to roost". Credit-ratings agency Fitch says that delinquencies have hit a 20-year high; 5.2% of borrowers are over 60 days late.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Analysts have dismissed fears of a subprime car loans bubble bursting because the economy is strong but then subprime mortgages started to weaken before growth turned down.
Subprime car-loan-backed bonds are only worth $27bn in total, and may not pose a systemic threat, but the sector has produced a nasty blast from the past.
-
What is the 25x retirement rule and does it work?The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
When is the self-assessment tax return deadline?If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
