Auto Loan Delinquencies Rise As Higher Vehicle Prices And Strain Household Budgets
Household delinquency rates on consumer debt are higher than they were in previous years, according to data from the New York Federal Reserve.
Vehicle prices and monthly payments rise since pandemic
The average cost of purchasing a vehicle has jumped significantly since the COVID-19 pandemic, directly inflating monthly loan obligations for American drivers. Jeremy Robb, chief economist at Cox Automotive, notes that new vehicle prices are hovering close to $50,000, while used vehicles average about $27,000—both marking an increase of roughly 41% compared to pre-pandemic levels.
This price appreciation has translated directly into higher monthly financing costs. Experian data shows the average monthly payment for a new car sits at $765, while the average used car payment is approximately $600, up from a pre-pandemic range of $300 to $350. Borrowers with weaker credit histories face even steeper financial hurdles. Matt Schulz, chief consumer finance analyst at LendingTree, explains that excellent credit secures an interest rate of about 7.5% on a new car loan, whereas poor credit can push rates into the 20% range.
Delinquency Trends At Regional Lenders And Consumer Impact
At La Salle State Bank in Illinois, chief lending officer Chris Duncan observes that auto loan payments are arriving later than they did a year ago. Borrowers who previously pushed payment timelines to 30 or 35 days are now stretching delays to 45 days. Duncan notes that because people prioritize vehicle loans to commute to work, late car payments indicate that credit cards are maxed out and cash savings have evaporated.
Lower-income households experience the greatest difficulty servicing auto debt. Anne Villamil, an economics professor at the University of Iowa, states that these consumers struggle the most to absorb rising vehicle purchase prices alongside ongoing expenses for maintenance, insurance, and gasoline. Because drivers cannot easily eliminate transportation costs, they curtail spending in other categories, such as dining out or entertainment.
Rising auto loan delinquencies reflect K-shaped economy
Despite rising defaults among vulnerable borrowers, overall economic fallout is expected to remain contained. Grace Zwemmer, an economist with Oxford Economics, projects that any resulting slowdown in total consumer spending will likely amount to fractions of a percentage point. Zwemmer characterizes the rising auto loan delinquencies as a symptom of a K-shaped economy, where financially secure consumers continue spending while struggling borrowers fall further behind on outstanding balances.
What are current vehicle prices and loan rates?
What percentage have vehicle prices increased since the pandemic?
Both new and used vehicle prices have increased by approximately 41% since the pandemic, according to Cox Automotive chief economist Jeremy Robb.
How much are average monthly car payments currently?
The average monthly payment for a new car is $765, while the average used car payment is about $600, according to Experian.
What interest rates apply to car buyers with poor credit?
Borrowers with poor credit may face interest rates in the 20s on new car loans, compared to about 7.5% for buyers with excellent credit, according to LendingTree chief consumer finance analyst Matt Schulz.
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