Auto loan balances, average amount financed, loan length, credit score, debt-to-income ratio, and delinquencies from subprime to prime.
By Wolf Richter for WOLF STREET.
Loan and lease balances outstanding for new and used vehicles rose by $28 billion in Q2 from Q1, and by $58 billion (+3.5%) year-over-year, to $1.71 trillion, according to the New York Fed’s report on consumer credit, based on Equifax data.
Auto loan balances rose over the years with vehicle prices as automakers kept going upscale with bigger, fancier, and more advanced vehicles. Balances also rose as vehicle prices spiked during the high-inflation years and chip shortages of 2020-2023.
But two factors did not contribute to rising loan balances: Vehicle unit sales have remained below the levels before the pandemic, and the average length of new vehicle loans was where it had been a decade ago and shorter than in 2020.
The average amount financed for new-vehicle loans soared to a record $42,500 (red line in the chart below), as automakers continued to go upscale.
US legacy automakers, in their infinite Wall-Street-inspired wisdom, killed off most of their sedan models even before the pandemic and handed that lower-priced market segment to foreign brands. Luxury 4X4 Crew Cab pickup trucks with a $100,000 sticker, that’s what Ford now wants to sell. And Americans are loving them and are buying them. And it pushes up the loan balance and the average amount financed.
For used vehicles, the average amount financed had peaked at the end of the 50% price spike during the pandemic. Used-vehicle prices have declined from that peak, and the average amount financed, at $24,900 remains below that peak, according to data from the Federal Reserve Board of Governors for Q1 (blue line).
The average loan length for new vehicles ticked up to 66.5 months, a level it first reached a decade ago, in 2016, but that was down from the free-money pandemic peaks.
Auto loans by credit score: Of all auto loans and leases originated in Q2, a near record-share of 54.6% were made to borrowers with a prime credit score of 720 and higher. The record in the data was set last year at 56.1% (blue in the chart below).
The share of subprime originations dropped to 15.6% in Q2, after hitting record lows last year (red). In the years before the pandemic, the share of subprime originations ranged from 20-22%. And it was higher still before the Financial Crisis.
Subprime means “bad credit,” not “low income,” a history of not paying bills and obligations. The young dentist that got into it over his head is a classic example of a high-income borrower with a subprime credit rating. They’ll get it worked out eventually. Subprime is not permanent.
Subprime lending is a high-risk-high-profit business, often conducted by specialized dealer-lenders that securitize the loans and sell them as asset-backed securities to bond funds, pension funds, etc. Subprime borrowers pay very high interest rates and often pay a lot more for their vehicles, than prime-rated customers, and default rates are huge, but so are the profits on the loans and the vehicles, and the credit losses are part of the cost of doing subprime business. Periodically, some of these subprime-specialized dealers implode, and some have recently, which is why the business is high-risk.
The aggregate burden and credit risk of those auto loans can be evaluated via a debt-to-income ratio. For household income, we use “disposable income,” released by the Bureau of Economic Analysis.
Disposable income consists of after-tax wages, plus income from interest, dividends, rentals, farm income, small business income, transfer payments from the government, etc.
But it excludes capital gains, which is where the wealthy make most of their money. Excluded are thereby income from stock-based compensation plans and capital gains where billionaires make their billions.
Disposable income has grown over the years because the number of households has grown over, and the income per household has grown, and so total household income has grown – and it turns out it has grown about as fast as auto loans, with some ups and downs in between.
The auto-loan-to-disposable income ratio in Q2 ticked up a hair to 7.25%, right in the middle of the sine-wave of the past two decades.
Delinquency rates: overall, subprime, and prime.
The 60-plus-day delinquency rate for all auto loans and leases, at 1.42% in June, was down by 2 basis points year-over-year, according to Equifax (red in the chart below).
The available monthly Equifax data only goes back to 2020, the free-money era when delinquency rates dropped to ultra-low levels. The increase since then is from those ultra-low levels. We lack the comparison to the pre-pandemic normal years.
The 60-day-plus delinquency rate of subprime auto loans ran at record highs starting in 2023, as a number of subprime dealer-lenders imploded – including Tricolor under a mushroom cloud of fraud allegations and some PE-firm-owned dealer-lender chains. Many of their customers stopped making payments at that point. Delinquency rates are seasonal, and January is the high of the year. In January 2026, the delinquency rate was a record 6.90%, up by 34 basis points from January a year ago. But the delinquency rate has improved this year and started running below year-over-year levels.
The subprime delinquency rate in June, at 5.67%, was down by 64 basis points year-over-year, according to Fitch Ratings, which rates these ABS (gold in the chart).
The 60-day “Prime” delinquency rate was a pristine 0.37%, according to Fitch, which tracks prime auto loans that were securitized into prime ABS (blue in the chart). Prime-rated auto loans are nearly always in good shape.
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Any thoughts on why the delinquency rates are seasonal, why Jan. Is the high ?
Consumer bankruptcies are seasonal too. Lots of stuff is seasonal for strange reasons. With a 60-day delinquency rate, a January peak doesn’t even line up neatly with the post-holiday blues, though it may have something to do with it.
I was just curious.
Long story short… who knows, and probably why should I care… haha
Thanks
Blame the weird cultural tradition of buying xmas presents.
In most cases if one needs to finance $42K for a car they should be buying something else. It’s been a couple years now, but we bought a “stripped down” new Honda CR-V for $32K that has more stuff in it than I could have dreamed of 45 years ago when I took out my first (and last) car loan.
Everyone has their own personal and financial situation and going by the delinquency index they seem to be more than capable of making payments.
We were going to pay cash. But they offered 1.9%.
I’ll let my money keep working.
“Subprime means “bad credit” – a history of not paying bills and obligations. It does not mean “low income.” The young dentist that got into it over his head is a classic example of a high-income borrower with a subprime credit rating. ”
Your dentist is the exception to the rule. Subprime is very strongly correlated with low income.
Not when it comes to borrowing to buy $15,000 vehicles or $300,000 homes. Low-income people cannot borrow. Low income people get subprime credit scores because they keep falling behind on their $200 utility bills or medical bills. But low-income people don’t have income to get a $15,000 loan at a dealer to buy a vehicle. They don’t even qualify for credit cards except with very low credit limits. It’s just BS to keep blaming low-income people for these bad loan balances — they cannot get loans. It’s the higher-income people that fall behind that are responsible for the vast majority of delinquent loan balances.
Which goes back to my observation, that I know a good handful of people that should be well off due to their income…. But constantly struggle due to poor financial decisions.
Just an observation.
Correct Huck. I’ve known many affluent people who have ruined their finances through poor investment decisions. And it isn’t always foolishness – the reason is sometimes hubris.
Some people make or inherit money and then begin to believe they have the Midas touch. They then proceed to invest in something about which they have insufficient knowledge to make wise decisions.
I knew a guy who was once worth $30 million and blew it on bad real estate investments. He wound up filing for bankruptcy and living the rest of his life like a schlub. True story.
So are we saying that the very high subprime 60 day deliquency rate from 2022 on is all attributed to: “Their customers stopped making payments, to see what would happen next.”?
I’d be interested in any hard data that shows how much these subprime company failures contributed to the skyrocketing 60 day deliquency rate starting in 2022 and continuing (with a recent dip as indicated). Thanks.
“So are we saying that the very high subprime 60 day deliquency rate from 2022 on is all attributed to: “Their customers stopped making payments, to see what would happen next.”?
No, we’re not saying that. We’re saying that those loans added to the normal delinquent loans (always huge with subprime), and so it become a record, rather than just normally high.
Tricolor was huge. And it involved alleged fraud. After it collapsed and the counting started, over 30,000 loans were found to be delinquent. And 60,000 to 100,000 loans were in limbo. That moves the needle in the small subprime segment. That come on top of the PE-firm-owned dealer-lender chains that collapsed.
On Monday I went to see my buddy’s new car. Luxury model Hyundai, with 178,000 km…that’s 110,000 miles on the clock. His current one has 350,000km so time to trade up. :-) He paid $300 for the new one and is tickled pink. The battery kept going dead so the owners just bought new. Problem? he put his meter on the usual suspect (dome light) and a bug had crawled in there to die and shorted out a diode….leaking 1.5A per hour. Removed the bug, charged the batt back up, and bingo.
$110K pickups? Can’t fix stupid. Time for a reset into reality. And Helocs to buy them? Crazy risk. You lose a job you lose the house and the wheels. Nuts.
1. “$110K pickups? Can’t fix stupid.”
Some people buy corporate jets. YOLO. You might as well buy what you enjoy. That’s America.
2. “And Helocs to buy them?”
No, because you can get a good deal on a loan or lease with the vehicle as collateral, and not your home as collateral. HELOCs are used for other stuff, such as remodeling, down payment for another rental property, a daughter’s wedding, and other stuff you cannot post as collateral; so you use your home as collateral.
MW: The average car loan is now $785 a month — and lasts for almost 6 years
1. Not the “loan,” but the “payment” is 785 a month.
2. That “almost 6 years” is the same as 10 years ago and is down from 2020. Look at the #3 chart.
Correct.
I traded my old truck to a kid for a new driveway. He loves the truck. I love the long driveway. That is America today without financing.
Holy guacamole! These numbers are stoopid.
I can’t imagine going several tens of thousands of dollars into debt just to drive a shinier Shopping Utility Vehicle or Luxury Pretty Truck.
The $1.7 TRILLION in auto debt and leases represents only a portion of the value of all the cars out there, which is probably several trillion. And every last one of them is depreciating rapidly, losing 5-10% of their value per year, and requiring costly insurance, maintenance/repairs, taxes, and interest/opportunity cost.
That money comes out of the pockets of regular people, many of whom work multiple months out of the year just to cover their transportation to work.
People get all worked into a tizzy about their taxes and the national debt, but meanwhile they’re getting their personal finances utterly destroyed by a lifestyle of driving too much in too much vehicle and getting utterly wrecked by the scams of auto dealers every few years. Don’t make another complaint about the macro environment unless you are doing something to stop this bleeding out of your own wallet. Drop the Pretty Truck and buy a used Civic for cash from a private party.
Our 15 and 16 year old Japanese econoboxes helped make us millionaires over the past decade, and they’re still going strong because we made a choice to live closer to work and take good care of them. I have zero regrets about not buying a bigger, fancier, less economical vehicle. That would have been less money available to invest in stocks.
These numbers are tragic. Many of these folks carrying all this debt will have Social Security / impoverished retirements, and what are they going to do when SS and Medicare get cut? Their kids will repeat the cycle, working a lifetime to pay the car and financial industries in exchange for some expected satisfaction promised by the car ads. Think for yourself or be poor.
While I agree that cars are very expensive, dealers aren’t scamming people into buying new cars. People want to buy new cars. Without those people you wouldn’t have old cars to buy.
Wolf, could you please clarify the seasonal peaks and valleys on the delinquency chart? I can’t tell which month is the high and which is the low, assuming it is the same each year, which it may not be. Thanks.