As the U.S. economy grapples with rising inflation and the aftermath of student loan repayment restarts, car loan delinquencies are emerging as a growing concern.
Recent data from the Federal Reserve Bank of New York indicates that auto loan delinquency rates are climbing, with economic uncertainty and higher interest rates squeezing borrowers.
This trend, coupled with shifting consumer behaviors, is reshaping the auto loan market and raising alarms about broader economic implications.
In the first quarter of 2025, auto loan delinquencies rose to 7.9%, up from 7.3% in the fourth quarter of 2024, according to the Federal Reserve Bank of New York.
This increase coincides with a surge in student loan delinquencies, which hit a record 15.6% of federal loans by the end of 2024, affecting 9.7 million borrowers.
The overlap is not coincidental: many borrowers who took advantage of the student loan payment pause during the COVID-19 pandemic used the extra cash flow to take on other debts, including auto loans.
Now, with student loan payments resuming, financial strain is pushing some borrowers to fall behind on their car payments.
“People may be falling behind on other debts because of the student loan burden,” said Ted Rossman, senior industry analyst at Bankrate.
“When money is tight, it’s a domino effect—missed payments on one loan can lead to trouble with others.”
This sentiment is echoed on X, where users have shared stories of financial juggling.
One user posted, “Between student loans and my car payment, I’m drowning. Interest rates are killing me.”
Another wrote, “Dealerships keep pushing loans, but who can afford these rates?”
High interest rates are a significant factor.
While home equity loan rates have dipped to a 2025 low of 8.23% by the end of May, auto loan rates remain elevated, averaging around 7.5% for new cars and 8.5% for used vehicles, according to Bankrate data.
With the Federal Reserve maintaining a “wait-and-see” approach to interest rates, as noted by San Francisco Federal Reserve President Mary Daly, relief for borrowers may not come soon.
The upcoming inflation reading on June 11 and the Federal Reserve’s June 17-18 meeting will be critical in determining whether rates might ease, but economists are cautious.
“Policy is in a good place to stay modestly restrictive,” Daly said, signaling that high rates could persist.
The economic backdrop is further complicated by a slowdown in consumer spending, which accounts for two-thirds of U.S. economic growth.
As reported by CNN Business, fears of a recession have heightened, and fragile consumer finances are straining the auto market.
Dealerships are responding with aggressive incentives, such as zero-percent financing offers from select manufacturers, but these are often limited to top-tier credit borrowers.
For the nearly 1 in 4 student loan borrowers who are delinquent, qualifying for favorable terms is increasingly difficult as their credit scores take a hit.
Capital One, a major player in the auto loan market, is also navigating challenges.
The bank’s recent $425 million settlement over misleading savings account practices and its ongoing integration with Discover Financial Services have raised questions about its focus on consumer services like auto loans.
However, Capital One continues to offer competitive refinancing options, which some borrowers are exploring to lower their monthly payments.
“Refinancing can be a lifeline for those struggling,” said Claire, a senior editor at Newsweek specializing in loans.
“But with rates still high, it’s not a cure-all.”
On X, discussions about car loans reflect a mix of frustration and pragmatism.
Some users advocate for buying used cars outright to avoid loans altogether, with one writing, “Skip the loan and buy a beater.
Save your money for when rates drop.”
Others point to the rising cost of vehicles, exacerbated by supply chain issues and inflation, as a barrier.
“Cars are so expensive now, even with a loan, it’s hard to justify,” another user noted.
Looking ahead, the auto loan market faces a critical juncture.
With over $250 billion in delinquent student loan debt and rising auto loan defaults, the risk of a broader economic slowdown looms.
Economists warn that continued delinquencies could dampen consumer confidence and reduce demand for big-ticket purchases like cars, further straining the economy.
For now, borrowers are urged to explore refinancing, negotiate with lenders, or consider delaying purchases until economic conditions stabilize.
As one X user succinctly put it, “2025 is not the year to be taking on more debt.”
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