Rising Auto-Loan Delinquencies
Auto loan delinquencies have sky rocketed to the highest levels of the last decade
The latest data from the New York Federal Reserve presents a concerning picture of the U.S. financial system. Credit card and auto loan delinquencies are climbing toward levels last seen during the Great Recession, with signs of distress cutting across income brackets and credit scores. These developments pose significant risks to the banking sector, particularly for large financial institutions. Auto loan delinquencies have sky rocketed to the highest levels of the last decade.
Mounting Consumer Debt Struggles
Given current economic conditions, these delinquency rates are likely to surpass that peak by late 2025 . Any uptick in unemployment could accelerate this timeline. As we can see, the US unemployment rate already sits at 4%. While this is comparatively low when looking back over the last two decades, I’m willing to bet that unemployment goes higher. We’ve already seen an increase in layoffs due to rising inflation, cost cutting efforts, and a shifting labor market.
These things all negatively impact the median household income. As households make less money, the combination of rising vehicle prices, increased loan origination amounts, and high interest rates has led to a surge in monthly auto loan payments that people just can’t keep up with. Don’t be a part of this statistic; make sure you avoid taking on car loans that take away from your ability to build wealth.
I personally know people that spend 50% of their monthly income on car payments and it makes no sense. Those same people then complain about how expensive everything is and how it’s difficult to get ahead. All it takes is doing some 15 minute math to figure out how damaging a car loan can be. A lot of these decisions go back to people’s inability to delay gratification. I still drive a beater Honda civic that I paid for back in 2013. While it wasn’t a beater back then, it has slowly become one with age. However, I still do my best to maintain it to extend its durability.
Auto lenders know how to prey on these people who lack the ability to delay gratification. It’s exactly why folks with lower credit scores get the worst loan rates. Just take a look at the table below.
Beyond auto lending, other areas of the financial sector are also showing signs of stress. Commercial real estate, general credit card debt, and multifamily loans all exhibit troubling trends.
How to Protect Your Finances
I previously issued an article on how to get your finances in order. It is a playbook on the steps that you can take to proactively better your financial situation over time. I’d recommend you start there if you need a guide.
The Money Playbook To Get Your Finances Straight
Some people put this taboo around money that makes it such an uncomfortable topic of conversation for most. I always found it strange that talking about money wasn’t embraced by the same people that would openly discuss drugs, sex, and gossip. As I’ve grown older I’ve come to learn that people’s hesitation to talk about money usually comes from the lack…