Auto loan delinquencies set to hit a historic low by 2025

In the United States, delinquencies on auto loans have shown signs of stabilizing according to a recent report by TransUnion. The company’s 2025 Credit Forecast indicates that the percentage of auto loans more than 60 days delinquent will remain nearly flat at 1.45% in the current year, slightly improved from 1.42% in 2023. However, it is projected to decrease to 1.38% by the final quarter of 2025, signifying a positive trend for consumers who manage their auto loan payments responsibly. This forecast marks a potential end to the volatility seen during the pandemic years. Despite the overall moderation in delinquency rates, a disparity exists between payments for new and used vehicles. Consumers in the subprime and below-prime segments, particularly those purchasing used cars, are experiencing higher rates of delinquency. This group often struggles with their finances, leading to challenges in maintaining timely payments on their loans. The concern for these consumers serves as a stark reminder of the economic challenges that remain in the landscape of automotive financing. In contrast to the trends in auto loan delinquency, credit card balances are anticipated to rise consistently over the next year. TransUnion estimates that total credit card debt will reach $1.09 trillion by the end of 2024, increasing to $1.1 trillion by the end of 2025. This represents a yearly growth rate of 4.4%, lower than the significant increases observed in 2022 (18.5%) and 2023 (12.6%). Nevertheless, the continuous rise in credit card balances poses questions about consumer financial health and the hierarchy when it comes to making payments. As payment priorities shift, one can expect consumers to prioritize auto loans over credit cards, based on historical trends in consumer payment behavior. While auto loans show promise in terms of improving delinquency rates, the financial strain from rising credit card balances could still affect many consumers' ability to stay current on their payments. The cautious optimism surrounding auto loan delinquencies comes with the understanding that not all segments of the market are recovering equally, indicating that there are still challenges ahead for many borrowers.