U.S. consumer spending has continued to fuel the economy at an unexpected rate over the past year. On the dark side, delinquencies on credit cards and auto loans are skyrocketing.
“New delinquencies are particularly bad for both auto loans and credit cards, with transition rates exceeding pre-pandemic levels,” the New York Fed said. Said In a post on the Liberty Street Economics blog.
The serious credit card delinquency rate, or the rate of loans that are more than 90 days past due, was 6.4% in the fourth quarter of last year, up from 4% in the same period a year earlier, New York Fed data showed on Tuesday. Rose.
The serious delinquency rate for auto loans rose from 2.2% to 2.7%.
“Credit card and auto loan delinquencies remain above pre-pandemic levels.” Said Mr. Wilbert van der Klaue, Economic Research Advisor, New York Fed. “This indicates increased financial stress, especially among young people and low-income households.”
High inflation, which has plagued the economy throughout Biden’s tenure in the White House, is a contributing factor. Car prices have soared, and car loan balances have ballooned. The average auto loan amount increased by 11% in 2021 and another 10% in 2022, according to the New York Fed.
By the end of 2022, the average first loan amount for a car purchased with financing will be nearly $24,000, up from $18,000 in the first quarter of 2020.
Although prices are starting to fall, delinquencies could rise as cars’ resale values decline and consumers find it harder to repay their loans in times of financial hardship.
Overall credit card balances increased by $50 billion in the fourth quarter to $1.13 trillion. Auto loan balances increased by $12 billion to $1.61 trillion.
Rising prices have led to an increase in loan balances, while rising interest rates have increased the burden of loan balances on borrowers. In other words, inflation is a one-two punch for American consumers, hitting first the prices of goods and then the cost of the debt that financed those purchases.
Credit card delinquency is skyrocketing, especially among millennials. However, auto loan delinquencies are more widespread and are increasing rapidly.
Credit card delinquency is increasing faster among Millennials than other generations.
Although the generation gap is less pronounced, millennials are also more likely to be delinquent on their car loans than other generations.
“Delinquency transition rates for all generations have risen sharply over the past two years, with delinquency transition rates for Millennials and baby boomers (born 1946-64) now exceeding pre-pandemic levels,” the New York Fed said. “There is,” he said.
“Loans originating in 2022 and 2023 have so far performed worse than loans originating in previous years. This is likely due to the fact that buyers in these years have lower vehicle prices. This may be because they have been forced to borrow more money and at higher interest rates in the face of rising prices,” Liberty Street said. said the blog post.
