Key Takeaways
- U.S. car owners are falling behind on their auto loan payments at a rate not seen in 13 years.
- The problem is driven by expensive cars and high interest rates on car loans.
- It's worse for 30-something borrowers, who have to contend with the resumption of federal student loan payments on top of other financial stresses.
Outsized auto loans are driving more and more borrowers to fall behind on payments.
Data released Tuesday by the Federal Reserve Bank of New York show that car owners fell a month or more behind on their auto loan payments at an annualized rate of 7.7% in the fourth quarter. That's the highest rate since the last quarter of 2010, based on a New York Fed survey as well as data from Equifax and the Philadelphia Fed.
The data show how hard household budgets have been hit by the combination of prices for vehicles soaring during the pandemic and interest rates on loans jumping over the last two years because of the Federal Reserve’s campaign of anti-inflation rate hikes.
“Delinquency transition rates have pushed past pre-pandemic levels, and the worsening appears to be broad-based,” researchers at the New York Fed wrote in a blog post. “Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in earlier years, perhaps because buyers during these years faced higher car prices and may have been pressed to borrow more, and at higher interest rates.”
Growing numbers of borrowers have car payments that are more than $1,000 a month, and average payments have been increasing too, according to the New York Fed. The average monthly payment on a new-car loan rose to $623 in the fourth quarter, the highest ever, despite a decline in car prices over that period. The average auto loan rate for a new car was 9.2% in December, and 13.8% for a used car loan according to auto market data company Cox.
The New York Fed’s data suggest that lower-income borrowers are being hit the hardest, with delinquencies rising fastest in lower-income areas.
The number of auto delinquencies so far hasn’t reached levels that would indicate a problem for the so-far surprisingly resilient economy, but the trend is worth monitoring, researchers said.
That’s especially true for borrowers in their thirties who are more likely to have student loan debt, and who are also increasingly struggling with credit card payments, researchers said on a conference call with reporters. The resumption of required payments on federal student loans has added financial stress to borrowers in that age group, and could get worse as time goes on, they said.
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FAQs
U.S. car owners are falling behind on their auto loan payments at a rate not seen in 13 years. The problem is driven by expensive cars and high interest rates on car loans. It's worse for 30-something borrowers, who have to contend with the resumption of federal student loan payments on top of other financial stresses.
Are auto loan delinquencies increasing? ›
Merchant notes that auto loan delinquencies now are close to the highest levels seen in the Great Recession, but they aren't necessarily alarming because delinquency rates are coming off extraordinarily low levels since the pandemic.
Are people falling behind on car payments? ›
The rates of Americans behind on auto loan and credit card bills continue to rise — in fact, both are at the highest levels in more than 10 years. Rising delinquencies indicate that more people are in financial distress.
Are people defaulting on auto loans? ›
More Americans are defaulting on their car loans due to larger loan amounts, high interest rates, increased living costs and more.
What is too high of a monthly car payment? ›
Key takeaways. Your monthly auto loan payments should not exceed 10 to 15 percent of your pre-tax take-home salary. Due to increased vehicle incentives, drivers may find relief when shopping for a vehicle this year. To secure the best deal, work to improve your credit score and consider making a sizeable down payment.
How many people are behind in car payments? ›
4.2% of outstanding auto debt was at least 90 days late in the fourth quarter of 2023, according to the New York Fed, up 11.8% from the fourth quarter of 2022. Meanwhile, the percentage of auto loans that fell to 30 days due was 7.7% in the fourth quarter this year, up 15.8% from 6.6% in the fourth quarter last year.
Which generations are currently the most delinquent on their auto loans? ›
In 2022, Gen Z and millennials were 90 days past due on $20 billion in auto loans.
What is the average car payment in the US? ›
Car payment statistics
The average monthly car payment for new cars is $738. The average monthly car payment for used cars is $532. 42.30 percent of vehicles financed in the fourth quarter of 2023 were new vehicles.
Why are car payments so high now? ›
The Fed has raised interest rates to cool the economy.
This means that you're spending more money on your monthly loan payments, since you're paying more in interest. With many of these auto loans starting at 6%, it's no secret as to why car payments are up.
Can most Americans afford a car? ›
Jerry says the average annual costs for a used car come in at about $12,200. For a median-earning household with about $64,000 of real after-tax income, paying that sum would mean spending 19% of their earnings on a used car. In other words, the once-frugal choice of transportation is now slightly out of budget.
Lenders are unlikely to completely forgive your loan unless you turn your car in (which we'll talk about later on). They may work with you on your payment size or due date, loan terms or deferment instead.
What could happen if you never pay back an auto car loan? ›
Once you are 30 to 90 days late on your repayments, your lender will likely say that your loan is in default. Once you're in default, the lender may be able to repossess your car anytime, without notice, and come onto your property to take it.
What credit score do auto loans go off of? ›
The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage.
What is a realistic monthly car payment? ›
The average monthly car payment is $735 for new cars and $523 for used.
What is considered a lot for a car payment? ›
A high car payment is a subjective term and can vary depending on a person's individual financial situation and priorities. Generally, however, a car payment is considered high if it exceeds 10-15% of a person's gross monthly income.
What is considered a bad car payment? ›
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
Are loan defaults increasing? ›
By loan type, the total delinquency rate for conventional loans increased 11 basis points to 2.61 percent over the previous quarter. The FHA delinquency rate increased 131 basis points to 10.81 percent, the highest level since the third quarter of 2021.
Are delinquency rates rising? ›
It is worth noting that delinquency in the populations we examined showed an increase for the last eight to 11 quarters. Although widespread, the increase is more notable in the poorest ZIP codes, where delinquency grew from 11% in the second quarter of 2021 to 17.4% in the first quarter of 2024—58% in relative terms.
Are credit card defaults increasing? ›
“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”
What is the delinquency rate for loans in 2024? ›
WASHINGTON, D.C. (May 16, 2024) – The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 3.94 percent of all loans outstanding at the end of the first quarter of 2024, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey ...
