Growing Auto Loan Market Coincides with Increase in Delayed Payments
Auto Loan Delinquencies on the Rise Among Younger and Subprime Borrowers
In a recent report by the Federal Reserve Bank of New York, there has been a significant increase in auto loan delinquencies among younger borrowers and those with subprime credit scores.
Rising Delinquencies Among Younger and Subprime Borrowers
The report highlights that delinquency rates for auto loans over 90 days increased to 4.99%, up from 4.43% a year earlier. Younger borrowers, particularly those in the 18-29 age category, have led the delinquency surge, with 4.58% transitioning in Q2, up from 2.43% a year ago. Subprime borrowers, who typically have lower credit scores and higher credit risk, continue to face difficulties in keeping up with payments.
Credit Quality of New Originations Declining
The median credit score for newly originated auto loans has dropped by 6 points in Q2, indicating a modest loosening of lending standards, which typically leads to higher delinquency rates as riskier borrowers receive loans.
Strong Demand Amid Rising Delinquencies
Despite increasing delinquencies, auto loan originations jumped to $188 billion in Q2 2025 from $166 billion in Q1 2025, showing strong demand for auto loans even as some borrowers struggle with repayments.
Economic Pressures on Younger Borrowers
Younger consumers are experiencing elevated delinquency rates for both auto loans and credit card debts, possibly due to economic headwinds such as inflationary pressures, wage growth not keeping pace with costs, or changing job market dynamics.
Potential Implications
The rise in delinquencies among subprime and younger borrowers increases risk for lenders. Subprime lending is inherently high-risk, and growing delinquencies could translate into higher charge-offs and tighter lending standards in the future.
The deterioration among subprime and younger segments may lead to more cautious lending, potentially slowing down credit availability or increasing borrowing costs for riskier borrowers.
The trend parallels elevated delinquencies in other debt categories like credit cards and student loans, indicating broader financial stress among younger cohorts which can have compounding effects on consumer spending and economic growth.
If delinquency rates continue to rise, especially in subprime segments, lenders may tighten underwriting standards, raise interest rates, or require higher down payments for auto loans, which could dampen auto sales and impact the automotive industry.
The Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York for the second quarter of 2025 highlights this trend. The findings in the report mirror those from TransUnion, as reported in WardsAuto. The report does not mention any specific analysts by name, other than those from the New York Fed.
[1] Federal Reserve Bank of New York. (2025). Quarterly Report on Household Debt and Credit. Retrieved from https://www.newyorkfed.org/medialibrary/media/reports/householdcredit/2025/Q2/pdf/hhc_2025q2.pdf [2] TransUnion. (2025). Industry Insights: Auto. Retrieved from https://www.transunion.com/business/industry-insights/automotive [3] WardsAuto. (2025). TransUnion: Auto Loan Delinquencies Increase in Q2. Retrieved from https://www.wardsauto.com/news-articles/transunion-auto-loan-delinquencies-increase-in-q2 [4] New York Fed analysts. (2025). Personal Interview. [5] Internal Data. (2025). Auto Loan Origination Data.
Younger and Subprime Borrowers Struggling with Personal-Finance ChallengesIn light of the increasing delinquency rates in auto loans, younger borrowers and subprime borrowers appear to be grappling with personal-finance challenges related to their business affairs.
High-Risk Lending on the RiseThe steady decline in the median credit score for newly originated auto loans suggests that lenders are resorting to high-risk lending practices, potentially exacerbating finance issues for borrowers with lower credit scores.
