By mid-2022, news emerged that auto loan default rates had begun to rise, especially among younger generations. Since then, delinquency rates have only continued to rise.
Younger age groups remain the most affected. In 2022, data from the Federal Reserve Bank of New York (aka the New York Fed) revealed that 3.59% of auto loans for borrowers aged 18-29 were lead to serious delinquency, which is defined as payments of 90 or more. days late This figure reached 2.3% for borrowers between 30 and 39 years old.
In fact, auto loan delinquency rates rose in 2022 for all age groups except borrowers ages 60-69. Delinquency rates rose to an average of 1.85% across all age groups, a 16% increase from 2021.
Low-income borrowers with poor credit are the hardest hit
While delinquencies and other effects of rising costs and rates have hit nearly every segment of borrowers, it has been borrowers with lower incomes and lower credit scores who have seen the sharpest effects.
Automoblog spoke with Andy Arledge, associate executive vice president of the consumer lending division at North Carolina State Employees Credit Union (SECU), about these effects from a lender’s perspective.
Arledge explained that SECU has seen a reduction in loan applications and originations in recent months, along with an increase in delinquencies. A decrease in loan applications and originations means a decrease in demand, while an increase in delinquencies indicates that borrowers are having more difficulty meeting their payment obligations.
“We have experienced a slight decline in application and origination volume, which has occurred across all credit score levels,” Arledge said. “However, borrowers with lower incomes and lower credit scores have experienced higher rates of delinquency and charge-offs, as expected.”
The increase in the cost of living has affected family budgets
According to Arledge, rising vehicle prices and auto loan rates are only part of the reason for rising delinquency rates.
“The delinquency and the casualties have increased in recent months,” he said. “A number of reasons are likely contributing to this, including rate increases. But also, an important factor is the rate of inflation, which has led to an increase in the costs of consumer goods and services.”
According to data from the Bureau of Labor Statistics (BLS), global inflation reached a more than 40-year high of 7.1% in 2022, with costs of goods and services rising across all sectors. Food costs increased by 10.6% in 2022 and energy costs by 13.1%.
These increases in the cost of living were not met with an equivalent increase in wages. The Conference Board estimates that the average US wage will increase by about 3.6% in 2022.
As a result, individuals and families had to increase their spending on basic necessities at a much faster rate than their wages. This left the average American with much less room in the budget for car payments and other expenses.
