Car Owners Are Struggling With Their Auto Loans

A recent study by TransUnion points to a potentially related trend in the auto loan market – rising delinquency rates. About 3.5% of consumers with auto loans are now behind on their payments.

A rising delinquency rate may indicate that households are struggling with debt, especially since paying off car loans is a high priority for many households. If you’re struggling to pay off all of your debt, however, you should consider paying off your most expensive debt first — and for most people, that means credit cards.

  • About 3.5% of consumers with auto loans are now behind on their payments.
  • Those who missed car loan payments during the pandemic were able to meet them thanks to government aid and stimulus programs. Now they are falling behind.
  • The total number of car loans in the US has decreased due to rising interest rates.
  • While it is important to prioritize high-value debt, usually credit card debt, auto loans are secured by the vehicle and may involve repossession if payments are not made.

About 3.5% of car loans default

A recent TransUnion study found that, in the second quarter of 2022, 3.34% of auto loans were more than 30 days past due and 1.43% were more than 60 days late in payments. This is the highest rate for five years, and a significant increase over the past two years.

TransUnion suggests several reasons for this increase. First, they noted, was the backlog of crime likely created by the pandemic. Many people who may have fallen behind on their car loan payments during the pandemic did not because of government relief, stimulus programs or car loan providers providing temporary assistance to their customers.

Second, while the number of outstanding car loans is at a five-year high, the total number of car loans has declined since 2018. This is partly due to limited supply during and immediately after the pandemic, which meant many customers had difficulty even finding a car to finance. It’s also related to the rising cost of new vehicles – the average cost of a new car is over $48,000, a record high.

Car loans are also more expensive due to rising interest rates. The weighted average auto loan rate across all loan types rose 2.8 percentage points to 10.6% last month. Those with low credit scores may be hit the hardest by this price increase. In October, a deep subprime borrower, with a credit score below 580, had an average rate of 18.2% on a new vehicle loan and 21.8% on a used vehicle loan.

In short: It looks like many people who fell behind on their car loans during the pandemic, but were kept solvent by stimulus payments, are doing so now. At the same time, the total number of car loans is decreasing. Both factors combined mean crime rates are at an all-time high.

Should I prioritize my car loan?

The TransUnion study also revealed some interesting facts about how customers prioritize their payments. The survey found that most people consider their monthly car loan payment to be one of their most important financial commitments—right behind their mortgage payment, and far more important than credit card payments.

And, this makes sense. Auto loan payments relate to a tangible asset – a vehicle – that you already use Additionally, the rising cost of cars over the past year means that many people are actually in a positive loan-to-value position: that is, their car is actually worth much more than the loan they took out to buy it. Both of these factors explain why paying off an auto loan is considered a high priority in many households.

Consumers should be careful about prioritizing unsecured loans over their car loans. If you’re having trouble staying current with your car loan, your lender may be able to offer flexibility in your payments, so you should contact them before you miss a payment. If you miss a payment, your lender will likely impose a penalty and eventually repossess the car if the loan defaults.

As with all types of debt, falling behind on your payments can adversely affect your credit score so it’s important to properly budget for debt service.


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