Young Borrowers Struggle to Keep Up with Rising Car Payments

has reached its highest level since the Great Recession. In the fourth quarter of 2022, 4.6% of borrowers under 30 were in serious delinquency, up from 3.7% a year ago.

There are a number of factors that have contributed to this trend, including rising interest rates, increasing car prices, and the lingering effects of the pandemic. Young borrowers are particularly vulnerable to these challenges because they tend to have less financial cushion than older borrowers.

The rising delinquency rate is a warning sign that the auto loan market is becoming increasingly strained. If interest rates continue to rise and car prices continue to climb, it is likely that the number of young borrowers who are delinquent on their loans will continue to grow.

Here are some of the reasons why young auto borrowers are falling further behind:

• Rising interest rates: Interest rates have been rising steadily in recent months, which has made it more expensive to borrow money. This has put a strain on young borrowers, who are more likely to have lower credit scores and to be carrying other debt, such as student loans.
• Increasing car prices: The price of new cars has been rising steadily for several years, and this trend is expected to continue in the coming years. This is due to a number of factors, including the chip shortage, the rising cost of materials, and the increasing demand for electric vehicles.
• The lingering effects of the pandemic: The pandemic has had a significant impact on the economy, and young borrowers have been particularly hard hit. Many young people lost their jobs or had their hours reduced during the pandemic, which has made it difficult for them to make their car payments.

The rising delinquency rate is a serious problem, and it is important to address the underlying causes. This will require a coordinated effort from policymakers, lenders, and borrowers. Policymakers can help by providing financial assistance to borrowers who are struggling to make their payments. Lenders can help by offering more affordable loan terms and by working with borrowers who are behind on their payments. Borrowers can help by managing their finances carefully and by making sure that they can afford the monthly payments on their car loans.

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