- Auto loan debt is increasing, accounting for nine percent of all household debt.
- Car debt is now second only to mortgages.
- The average new car price is currently $47,870.
It’s no secret that cars, whether new or used, are more expensive than ever. Consequently, there’s more debt tied up in auto loans. A new report from Financial Times gives us a fresh perspective on how extreme that debt has become.
Among major expenses in the average household, car loans are second only to mortgages, at nine percent of all debt. It edged past student loans in the second quarter of this year, and it’s not far from mortgages, which have dropped ever-so-slightly in recent months. People are also struggling to keep up with those big payments, as delinquencies are way up. Through July, delinquencies were nearing record-high levels set back in 2009 during the global financial meltdown.
To make matters worse, buyers who spent big during the COVID pandemic and supply chain shortage—when new vehicles were scarce and used prices skyrocketed—are now facing the bitter pill of negative equity as vehicle values fall. Many of these buyers now owe far more than their cars are worth, something that also affects lenders if a repossession takes place. The bank can’t recoup as much cash on a sale, which negatively affects loans and loan rates. That gets passed to the consumer, and it all starts over until the bubble pops like it did 15 years ago.
If there’s any good news, it’s that the report mentions fewer repossessions for households with prime loans than what took place before the Great Recession in 2009. In other words, folks with better credit are behind on payments, but they’re trying to catch up. Whereas before, they simply kissed their $60,000 SUV goodbye.
It’s also worth noting that mortgages accounted for considerably more household debt back in 2009, far above everything else. Buyers sacrificed their pricey cars to try and keep their pricier homes.
Per Cox Automotive, the average new car price now sits at $47,870. That’s down just a bit from its peak in 2022, but total automotive debt is still in the range of $1.6 trillion as of last September.