Why Individuals Are Defaulting On Their Auto Loans In Record Numbers

Loan accommodation programs put in place during the pandemic to assist financially strapped families have led to an increase in auto loan defaults nationwide.

By Mariah Rogers | Published

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It seems as though everything is getting increasingly expensive these days. From groceries to auto loan payments, making big bills on time has never been more of a struggle for everyday American families. Inflation is at an all-time high and is expected to keep increasing, leaving consumers with few options when it comes to making purchases. 

While consumers are still actively trying to make payments on time and as employment numbers stay steady, one of the only ways to see relief is to cut costs. TransUnion is one of the largest auto loan trackers in the United States today, and they have a close eye on over 81 million auto loans according to ABC News. TransUnion has reported that the percentage of loans is at the highest delinquent rate month over month, that the economy has seen in decades. 

American families are having to choose between keeping the lights on and making auto loan payments, thanks to increased inflation and extremely tight market rates. There is simply less money available for workers to contribute to auto loan payments, as they have to allocate these funds toward living essentials such as food and water. Those with low credit scores and low income are being impacted the most. 

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Over the past two months, the average cost of buying a new vehicle has gone up by over $2,000. Even used vehicles have seen the same amount of growth, making purchasing a new vehicle almost seem like a better investment for potential buyers. From September 2021, used cars have gone up in price by nearly $2,400, making purchasing even a used vehicle an extreme expense. 

Loan accommodation programs and stipends have also seized to a halt post-pandemic. This relief has now ended, leaving Americans with more costs they were excused from for over two years. These accommodation programs were put into place to help ease the burden on Americans who had auto loans and also lost their jobs due to the coronavirus pandemic.

The results of pushing these financial burdens back have proven to cause difficulties for many. Some are even asking if these accommodations were helpful at all since the hit has become even harder in post-pandemic life. More than 200,000 people with auto loans who had taken advantage of the accommodation stipends have now become delinquent. 

Despite all of this, auto loans have climbed for both new and used vehicles. Higher interest rates are no fun for anyone, causing many borrowers to stretch their loan contracts to an average of seven years or more. However, the market as a whole remains relatively healthy despite the concerns listed above. 

The real challenge will occur if and when unemployment rises across the United States. Then, the auto loan industry will start to seize, as Americans will be unable to make payments on their vehicles. In the meantime, the market has stayed steady, despite rising interest rates and borrowing fear.