Why More Americans Are Struggling to Meet Auto Loan Payments

More Americans are finding it increasingly difficult to keep up with auto loan payments. Rising car prices and elevated interest rates have created a challenging financial landscape. Recent data from VantageScore indicates a significant rise in auto loan delinquency rates, which have surged by over 50% in the last 15 years.

Auto Loan Payment Struggles

The delinquency rate for auto loans has notably increased, while rates for credit cards, personal loans, and home equity loans have declined. Rikard Bandebo, chief economist at VantageScore, remarked that auto loans, once the least risky credit product, are now one of the riskiest—second only to student loans—as we look toward 2025.

Current Financial Landscape

According to data from the Federal Reserve, auto loan delinquency rates reached 3.8% in June 2024, the highest figure since June 2010. This rise affects households across all income levels, and delinquency rates among prime borrowers are climbing even faster than those of subprime borrowers.

• Auto Loan Delinquency Rate: 3.8% (June 2024)
• Increase in Average Loan Amount: 57% over the past 15 years
• Average Monthly Payments: $600 (increased by $130 from January 2020 to January 2023)

Factors Contributing to Delinquency

The rising monthly payments are a significant factor contributing to this struggle. From January 2017 to January 2020, average monthly car payments increased by only $40. However, they surged by $130 just between January 2020 and January 2023. Currently, one in five new car loans has monthly payments exceeding $1,000.

The average price of a new vehicle is now above $50,000, marking a record high. The high costs of vehicles have pushed buyers to finance more often, often at elevated interest rates. In September, average rates were 7% for new cars and about 11% for used vehicles.

Broader Economic Pressures

According to experts, broader economic conditions are also influencing delinquency rates. Inflation and an uncertain job market continue to strain many Americans financially. While inflation has shown signs of cooling, average wage growth still lags behind, making it challenging for individuals to keep up with costs.

The bank rate analysis indicates that average wages may not catch up with inflation until mid-2026. This economic reality makes it increasingly difficult for many Americans to maintain timely auto loan payments, placing them at greater risk of delinquency.