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Auto loan delinquencies in the United States have increased by more than 50% since 2010, according to a recent report by VantageScore. This shift has transformed auto loans from one of the safest to one of the riskiest consumer credit products. The report highlights several factors contributing to this trend, including record-breaking car prices, higher maintenance and insurance costs, and elevated interest rates. Additionally, longer-term loans have exacerbated the issue, making it harder for consumers to keep up with payments.
According to Yahoo Finance, the average transaction price of a new vehicle exceeded $50,000 in September, driven by luxury models and expensive electric vehicles. This has left many consumers struggling to manage their auto debts. The Consumer Federation of America reported that Americans now hold over $1.66 trillion in auto debt, with delinquencies and defaults surpassing pre-pandemic levels.
The Bloomberg article notes that consumers across all income categories are finding it difficult to meet their monthly car payments. The rise in delinquencies is partly due to auto lenders loosening their credit standards during a period of increasing car prices and pandemic-era financial relief. However, as credit standards tighten, many consumers still face financial strain due to rising costs, resumed student loan payments, and a weak job market.
VantageScore Chief Economist Rikard Bandebo describes the current situation as "the most precarious consumer credit health situation since the last financial crisis." He emphasizes that a sustained increase in auto delinquencies indicates broader affordability challenges across the consumer economy. If unemployment remains below 5% and inflation is controlled, delinquencies may eventually decrease.