Millions of Americans Skip Credit-Card And Car Payments (#GotBitcoins?)
About 15 million credit-card accounts and 3 million auto loans didn’t get paid in April as the coronavirus ravaged the economy, data show. Millions of Americans Skip Credit-Card And Car Payments (#GotBitcoins?)
Millions of people are behind on their credit-card and auto-loan payments, the latest sign of the coronavirus pandemic’s financial devastation.
Lenders in April had nearly 15 million credit cards in “financial hardship” programs, such as deferral programs that let borrowers temporarily stop making payments, according to estimates by credit-reporting firm TransUnion. That accounts for about 3% of the credit-card accounts the company tracks, TransUnion said Wednesday.
Nearly three million auto loans were in these hardship programs, accounting for about 3.5% of those tracked.
The numbers have surged from a year ago, when 0.03% of credit cards and about 0.5% of auto loans were in financial-hardship programs.
The spike in unemployment caused by the coronavirus has strained people’s ability to make their monthly debt payments. To make matters worse, Americans were tapping credit cards and auto loans at record levels even before the pandemic to deal with rising costs and stagnant incomes.
As coronavirus cases surged in the U.S. and businesses shut down, millions of people told their lenders they wouldn’t be able to pay their bills. Some lenders have allowed borrowers to miss payments for as long as several months on credit cards, auto loans and personal loans.
About 840,000 personal loans were in deferment or another type of financial hardship in April, accounting for 3.6% of those tracked. TransUnion’s estimates include accounts where the borrowers are pausing their payments with permission, as well as accounts that have been frozen.
The stakes are high for borrowers and lenders alike. Consumers who can’t pay could be sent to collections. Their credit scores could also drop significantly, making it harder for them to access affordable credit in the future.
Lenders could face a reckoning, too. Allowing borrowers to pause their payments lets lenders avoid a big spike in delinquencies and charge-offs, at least for the short term. Credit cards in deferment, for example, aren’t factored into the delinquency rates that many lenders report.
Lenders hope that being flexible with borrowers will buy time for the economy to recover and for consumers to get back on track with payments. But lenders can shoulder the unpaid loans for only so long, and many are bracing for a mountain of defaults that they’ll eventually write off as a loss.
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