In a cautionary signal for the lending industry, auto loans delinquencies are reaching new heights, particularly among borrowers with poor credit.
A study from Fitch Ratings shows that the number of subprime auto borrowers who are at least 60 days past due on their loans has reached its highest level since the agency began tracking this data in 1994. Last month, The Federal Reserve Bank of New York reported that the overall percentage of auto loans classified as delinquent—at least 90 days past due—rose to 3% in Q4 2024, the highest level since 2010.
According to Brian Riley, Director of Credit at Javelin Strategy & Research, auto loans are a key indicator of financial strain among riskier borrowers. For many subprime borrowers, these loans represent their biggest monthly debt payment, as they often don’t have mortgages or student loans.
Lending Standards Have Held Tight
The increase in delinquency does not appear to be the result of loosening credit standards, as was the case during the subprime mortgage crisis. While auto loan balances have grown steadily since 2011—expanding by $48 billion in 2024—this growth has largely been driven by borrowers with higher credit scores.
For other borrowers, loan originations have held steady. Indeed, the average rejection rate for auto loans has been growing, increasing by 0.4 percentage points to 11.4% in 2024—the highest level recorded since the Fed began tracking this data in 2013.
Auto loans for consumers with the lowest credit scores are generally issued by what the Fed refers to as non-captive auto finance companies, such as AmeriCredit Financial. Loans from these lenders have experienced the most pronounced rise in delinquency rates in recent years, reaching roughly 5.5%, while delinquency rates from larger banks have remained below 3%.
Would Tax Deductibility Help?
Earlier this week, President Trump proposed a way to ease this problem: making interest on loans for American-made cars tax deductible.
According to Experian, the average loan for a new car is around $40,000, with an interest rate of 6.8%. Over the first year of a 60-month loan at that rate, borrowers would pay around $2,500 in interest. A household in the 24% income tax bracket could save $1,794 over the life of the loan.
However, these savings would benefit only a small subset of consumers—namely the 10% of taxpayers who still itemize deductions. Since these taxpayers tend to be wealthier, the overall impact on auto loans would likely be negligible.
