There are only about two weeks left in 2016, and that means two things: it's time for a host of year-end wrap ups and plenty of predictions about 2017.
We'll leave the year-in-review article for another time (because, of course, a lot could still happen in the last 15 days of December), but predictions are a bit easier. That's because the Federal Reserve Bank just agreed to raise interest rates for only the second time in a decade.
For some people, the interest-rate uptick won't have much of an effect. Fixed-rate auto loans and mortgages, for example, are insulated from such fluctuations.
However, borrowers with variable-interest loans could definitely feel the pinch. And unfortunately, the people who tend to take out those kinds of loans are often the least-suited for adapting to changing interest rates.
Credit giant Transunion believes this week's interest hike--along with the three or four additional increases many analysts predict for 2017--will drive up delinquency rates on both auto loans and credit cards. The worst effects will be seen in the subprime market, which shrank quickly after the Great Recession but has been expanding dramatically over the past few years.
That would be in keeping with recent trends. Serious delinquencies among subprime auto loans have risen 23.5 percent over the past five years. That's much higher than the rate of delinquencies among credit card holders or mortgages--in fact, the latter has actually fallen by nearly 61 percent since 2012.
By the end of 2017, Transunion expects the auto loan delinquency rate to hit 1.40 percent, the highest since the end of 2009, when it reached 1.59 percent.
The good news, according to Transunion's Jason Laky, is that although delinquencies may be on the rise, they're not likely to spike: "We do not expect to see a surge in auto delinquency unless there is an economic shock." He also says that if lenders behave themselves, the increase in delinquencies won't have a significant increase on banks' bottom lines. In other words: the chances of another financial meltdown are slim.
Which is great news for banks and investors, but maybe not so much for subprime borrowers.