2 days ago
Delinquent Auto Loans Reach a Record High in Q1 2025
A wave of thick air currently surrounds the new and used car market, as trade tariffs and other factors make cars not only more expensive to buy, but also to keep running. According to data from S&P Global Mobility, the average age of a car in the United States is 12.6 years old, and everything about owning a car feels more expensive these days. Insurance premiums are high, a visit to the mechanic for repairs is a costly endeavor, and even gas can cost an arm and a leg if you own a real gas guzzler.
However, some people end up so fed up that they bite the bullet and get themselves a new or new-to-them set of wheels. If they don't have all the cash up front, they sign up for a car loan; however, new data shows that more Americans are falling behind on their car payments, too.
In a new report from TransUnion, one of the three largest credit agencies, along with Experian and Equifax, 1.4% of auto borrowers were at least 60 days behind on their auto loan payments during the first quarter of 2025. While this might seem like a minor issue, it is noteworthy because it is the highest delinquency rate for the first quarter ever, higher than last year's figures and even those seen during the recession, specifically the first quarter of 2009. It shows that borrowers still feel the aftereffects of pandemic-era auto lending on different types of loans.
Borrowers who financed used cars were found to be the most problematic. TransUnion found that 1.9% of used car borrowers were 60 days late on their payments, slightly higher than the 1.8% figure from the previous year. Though it may seem insignificant, it proves a concerning trend within an already challenging landscape. On the other hand, borrowers who financed new cars maintained a steady delinquency rate of 0.6%.
As of the first quarter, the average balance of an auto loan rose to $24,413, a 1.6% year-over-year increase from last year. This comes as cars become more expensive, higher interest rates impact borrowers, and extended loan terms (longer than 72 months) become the norm.
Some blame for today's auto loan delinquency rate falls on loans made in 2022, when car prices were high and credit conditions were stunted. Back then, the federal stimulus checks and unusually high credit scores made many borrowers look better on paper than they were, leading to many getting approved for loans that would've otherwise been risky for lenders.
Additionally, owning a reliable vehicle has become more expensive. Satyan Merchant, an automotive and mortgage business leader at TransUnion, notes that a rise in car insurance premiums, maintenance costs, and gas prices significantly contributes to missed payments rather than uncontrolled borrowing or a poor sense of budgeting.
Erik Laney, the CFO of Santander Consumer USA, also echoes this concern. During remarks at the Auto Finance Summit East on May 13, he said that the auto finance sector is experiencing a "fairly unique" stress level. Auto loans experienced an increase in delinquencies compared to other types of debt, such as credit cards, because they were disproportionately affected by recent events, including fluctuations in used-vehicle prices. He pointed out that as a result, some buyers are making payments on car loans that outweigh the actual value of these cars. As these values decline and owners face financial pressure, these loans will begin to show their cracks.
A recent report from the Federal Reserve Bank of New York adds more color. The New York Fed's analysis, which also included data from Equifax, another credit bureau, revealed an increase in total auto debt and a rise in auto delinquencies of at least 90 days during the first quarter. Over the past year, auto loan balances increased by 1.6%, bringing the total to $1.6 trillion. However, it's important to note that these balances actually decreased by 0.7% from the fourth quarter of 2024 to the first quarter of this year. This trend has only been observed once in more than a decade. The Federal Reserve also reported that 2.9% of auto loans are now classified as "seriously delinquent," meaning they are 90 days or more past due. This is a slight rise from 2.8% a year earlier, but the Fed described the rate as "stable."
"Transition rates into serious delinquency have leveled off for both credit card and auto loans over the past year," New York Fed economist Daniel Mangrum said in a May 13 statement.
This type of news highlights just how important it is to approach car buying responsibly and plan financially, especially if you're considering a purchase in 2025 of either a new model or a pre-owned vehicle. It's truly important to take a step back and thoughtfully evaluate your financial situation and set a budget that you can actually comfortably afford.
I get it: a new or new-ish car can be incredibly tempting, but in today's auto financing landscape, you must take a closer look at any plan that comes with a payment. The proof is in the pudding, and the challenges aren't always in the fine print. By being diligent, you can protect yourself from potential hurdles and make a decision that won't wreck you or your credit.
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