An increasing number of Americans are borrowing to buy cars. In the first quarter of 2019, the Federal Reserve Bank of New York found that more than a third of people in the U.S. have auto loans — up from 20% in 1999.
As a result, total auto loan debt is on the rise, up $6 billion to a total $1.28 trillion in Q1 2019. And as the chart below shows, auto loan balances have continually increased since the end of 2010.
Image: djavgdebt-autoSource: Federal Reserve of New York
The report from the New York Fed also showed that delinquent auto loans — accounts that are at least 90 days late on payment — are also on the rise, meaning that even though people are buying cars, they’re having trouble making payments.
Want to know more?
- Why are people having a harder time with auto loan debt?
- What does the future hold for auto sales and debt?
Why are people having a harder time with auto loan debt?
There are a number of factors that could be leading Americans to take on more auto loan debt, including some indications that people are taking on more debt overall.
Credit Karma's State of Debt and Credit ReportIn the same report outlining the rise in auto loan debt, the New York Fed also found that Americans’ overall debt hit a record $13.67 trillion in the first few months of 2019, surpassing its last high, in 2008. This means people are carrying more total debt than they have in a long time.
Another factor could be a change in the type of auto loans people are getting. The New York Fed noted that as of the end of 2018, 6.5% of car loans issued by auto finance lenders were in default, versus 0.7% of auto loans issued by credit unions — a significant gap.
What does the future hold for auto sales and debt?
Although the latest New York Fed data on auto loans and delinquencies probably isn’t an indication that the economy as a whole is in trouble, it’s possible that vehicle sales could be impacted if people decide they can’t add a car payment to their monthly bills.
Meanwhile, the Trump Administration is proposing tariffs on Mexican imports, which are set to go into effect as early as next week. With the U.S. importing nearly $116 billion in auto parts from Mexico, according to the New York Times, such a move could significantly impact the auto industry.
At a time when new-vehicle prices have already climbed nearly 4% from May 2018 to May 2019 — reaching an average $37,185, according to Kelley Blue Book — the added cost of tariffs could potentially be passed on to consumers.