Discover Why More Americans Are Struggling with Auto Loan Payments
More Americans are struggling with auto loan payments as the financial landscape changes. A recent study from VantageScore highlights a troubling trend: auto loan delinquency rates have soared by over 50% in the last 15 years. This contrasts sharply with other loan types, such as credit cards and personal loans, where delinquency rates have declined.
Rising Delinquency Rates
According to VantageScore’s analysis, auto loans, once considered relatively safe, are now deemed the riskiest credit products after student loans. Chief economist Rikard Bandebo noted that the situation has deteriorated significantly since 2010. In June 2024, the delinquency rate for auto loans hit 3.8%, the highest figure recorded since June 2010. The increase affects borrowers across all income levels, revealing a broad decline in consumer credit quality.
Key Statistics
- Auto loan delinquency rates increased to 3.8% in June 2024.
- Average auto loan amounts have surged by 57% in the past 15 years.
- Average monthly car payments rose by approximately $130 from January 2020 to January 2023.
Factors Behind the Struggles
Several factors contribute to the rising issue of auto loan delinquencies. The most significant factor is the sharp rise in monthly payments. The Federal Reserve reports that average monthly payments for auto loans reached $600 by January 2023, up from $470 in January 2020. This upward trend is driven by soaring vehicle prices and interest rates.
As of September 2024, the average cost of a new vehicle exceeded $50,000, according to Cox Automotive. The associated auto loan rates are also climbing, with averages of 7% for new cars and around 11% for used cars, according to Edmunds.
The Impact of Economic Conditions
Experts believe that broader economic factors are intensifying the problems faced by auto loan borrowers. VantageScore’s Susan Fahy noted that increasing auto loan delinquencies can also be linked to inflation and uncertain employment conditions. Although inflation has moderated compared to its peak in 2022, many Americans continue to struggle with high prices. A Bankrate analysis indicates that average wage growth is lagging behind inflation and is not expected to catch up until mid-2026.
Conclusion
The combination of rising vehicle prices, higher borrowing costs, and economic pressure is making it increasingly difficult for Americans to meet their auto loan obligations. As conditions continue to evolve, it will be crucial for potential car buyers to evaluate their financial situations carefully before taking on new auto loans.
