American Debt: Auto Loan Balances Hit $1.62 Trillion in Q1 2024

Balances are up but originations are down

Fact checked by Vikki VelasquezFact checked by Vikki Velasquez

Americans shoulder $1.62 trillion in auto loan debt, according to the Q1 2024 Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York. The level of auto loan debt is nearly double what it was just 10 years ago in 2013, and the figure has risen almost every quarter since 2010. In the first quarter of 2024, credit bureau TransUnion estimated that the average auto borrower had an outstanding balance of $24,035.

Key Takeaways

• Auto loan debt held by Americans rose to a record $1.62 trillion in the first quarter of 2024.
• Auto loans is the second-largest debt category behind mortgages.
• The percentage of delinquencies that were 90 days and over on auto loans increased.

Auto Loan Debt Increases With Total Household Debt

Both our research and the research from the Federal Reserve of New York show that auto loan debt currently makes up over 9% of all outstanding household debt. Its growth accompanied a rise in total household debt, which stood at $17.69 trillion as of Q1 2024, an increase of $184 billion from the previous quarter. Auto loan debt ($1.62 trillion) is the second-largest category of American household debt after mortgage debt ($12.44 trillion).

While the total balance on auto loans increased, the number of originations, or new loans, remained flat from the previous year. TransUnion reported that the number of originations was 5.8 million in the first quarter of 2024 and during the same period in 2023. TransUnion reported that high interest rates and inflation, make the affordability of automobiles difficult.

Lenders benefit from the higher costs due to the increased interest rate environment. Some may continue to offer lower interest rates to attract new consumers, giving them an edge over their competition. However, borrowers have found it challenging to keep up with the cost of borrowing, which has resulted in increased delinquencies on loans.

The Federal Reserve remains cautious about what impact rising prices and rising interest rates might have on consumers, particularly noting that auto loan delinquencies have increased as elevated car prices put stress on household budgets.”

Important

When buying a car, make sure to take steps to improve your credit score beforehand so that you can ensure you’ll be approved for a loan and one with a good interest rate.

Auto Loan Borrower Profiles Look Good

Americans have had difficulty keeping up with payments on auto loans, where about 5% of the auto loan balance of borrowers was 90 days or more delinquent. This level has remained fairly flat from 2021.

After 90 to 120 days of delinquency, lenders consider borrowers to be in default and can repossess their vehicles, although some lenders became more lenient during the coronavirus pandemic.

The median credit score for auto loan borrowers was over 700, close to 725, which is little changed from a year before, but the overall trend has been increasing. That score is considered good, but not a very good or excellent credit score.

What Is the Smartest Way to Finance a Car?

The smartest way to finance a car is to get quotes from different lenders, including dealers and financial institutions. Generally, banks will have better loan terms than a dealer, but you can negotiate the price of the car with a dealer, particularly if you obtain the loan from them. The best way is to just determine the best price you will receive, which includes the price of the car and the interest rate on your loan.

Should You Tell a Dealership You Are Pre-Approved?

Yes, telling a dealership that you are pre-approved for an auto loan will signal to them that you are serious about purchasing a car and have already taken important steps to do so. This way, they will spend serious time assisting you in buying a car and possibly helping you find a good deal as they know you are not just looking without a serious commitment.

Do High Interest Rates Make a Car More Expensive?

Generally, yes, high interest rates make a car more expensive. The reason is that most cars are not purchased entirely with cash but with an auto loan. When interest rates are high, the interest rates on auto loans will usually be high, making the car more costly to purchase.

The Bottom Line

The higher inflation and high interest rate environment have made borrowing costly for consumers. Auto loan delinquencies have increased, however, demand for automobiles has remained strong, as seen by the continued demand for auto loans, which decreased only slightly YOY.

Read the original article on Investopedia.