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Can bad news travel fast, too? Fears escalate that credit deliquency in the states could travel over the atlantic
They say that the sub-prime mortgage crisis originally started in the United States, with troubled banks lending money to people who simply couldn’t afford to pay it back.
Now the question on the lips of financial experts in the UK is this: could an all-time high record of credit delinquency in the US, spread over to Britain?
New statistics have revealed that car loan repayments have reached an all-time low, meaning that an already troubled international car market is being to encounter an increasing amount of toxic assets.
The principle reasons for the lack of people keeping up with payments in the States is because of spiralling unemployment levels, meaning that loan repayments that could be financed three or four months ago now are becoming a challenge. The latest statistics from authorities there have suggested that the rates of unemployment are at a 25-year high.
As the unemployment rate topples 2 million, with that number steadily rising as time goes on, there are fears that sooner or later, car loans that were taken out in recent times may end up in arrears which could land UK car makers in even further trouble.
It hasn’t been too good a week for car makers. Earlier, the Government confirmed that they were definitely were not planning to renew the car scrappage scheme, in a devastating blow to the troubled industry.
This combined with the tightened criteria for lending to consumers means that loaning money to purchase a car is an option that is slowly fading away. This tightened criteria has resulted in people with a bad credit score or a bad credit rating from being successful in loan applications.
Some financial experts have said that the situation is a very nasty cycle. This is because a bad credit score means that people do not get accepted for loans. In turn, this goes down on their credit record as a failed loan application, in turn worsening the situation further.
Delinquencies are the US definition of a payment that has been overdue for more than 30 days.
The American Bankers Association chief economist, James Chessen, explained the current American situation in more depth: "When people lose their jobs, they can't pay their bills. Delinquencies won't improve until companies start hiring again and we see a significant economic turnaround."