WFC - Could Auto Loans Be Problematic for Banks Down the Line?
The coronavirus pandemic has likely resulted in hundreds of billions of dollars in total loan deferrals, in which lenders allow borrowers to skip certain payments and move them to the end of a deferment period or perhaps the end of the loan term. These deferrals have become a big mystery for everyone watching the banking sector, as investors and bankers themselves try and figure out how many of these borrowers will return to good financial footing and how many loans will turn into losses.
There has been plenty of talk about issues in the commercial sector, and credit card loans usually see higher loss rates during a recession. Many of the country's top auto lenders are also seeing high deferral rates. There had already been some signs of trouble in the auto lending segment before the pandemic began, which begs the question of whether banks will see problems in this portfolio down the road.
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