Americans — particularly millennials — are alarmingly late on car payments

Record breaking figures have been released that have shown that over seven million Americans are over 90 days late on their auto loan repayments, and it is the millennial generation that are the leaders of the delinquency rate, this according to a report by the New York Fed.

The NYF’s recent study found that the number of auto loans and lease payments on credit reports in the year of 2018 reached a sharp peak. A peak which has been shown to be the highest level in the last 2 decades, at an eye watering $584 Billion USD. If you look at the amount of auto loans that are currently facing serious delinquency, the researchers have noted that there was a “severe decline in the performance of loans that are held by the borrowers aged under 30 years old.” Borrowers between the ages of 18 years and 39 years “millennials” have shown the worst delinquency rates compared to other demographics.

Researchers said that overall, the end of the 2018 financial year saw “more than a million more troubled borrowers than there had been at the end of 2010,” That was when delinquency rates were at their worst on record. Auto loans have also increased in numbers by over 35% since the great recession according to researcher’s data. “The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector,” the report said.

The strongest correlation between millennials and the recently released figures seems to be credit rating. Millennials with poor credit seem to be the contributing factor to this worsening trend

Chief financial analyst for Greg McBride said in a recent interview. “Those with poor credit ratings have much higher delinquencies. It’s much more a function of credit rating than age.”

McBride went on to explain that the younger generation don’t have the luxury of a long and well established credit rating like their parents before them, which does result in the youngsters being classed as non-prime borrowers, this in addition to depriving millennials of access to financing options from credit unions, or bank facilities.

“Borrowers with credit scores less than 620 saw their transitions into delinquency exceed 8 percent in the fourth quarter,” the NY Fed report concluded, “a development that is surprising during a strong economy and labor market.”
McBride did down play an idea that millennials who are going through college and university were relocating funds which was the cause of the delay in payments to the creditors. He went on to say “If you run into financial difficulty, you have more flexibility on that than any other form of payment… with car payments in particular, you have absolutely no wiggle room.”

McBride mentioned that while auto loan payment defaulting didn’t warrant alarm, the situation was worrying when looking at housing debt overall, which includes credit cards, mortgages, and auto loans. Auto loan debt makes up a staggering 9.4% of all household debt according to the NYF.

Christopher Gomes – Bradshaw Management