Growing Auto Loan Market Witnesses Increase in Overdue Payments
In a recent report, the Federal Reserve Bank of New York has highlighted a significant increase in auto loan delinquencies among younger borrowers and those with subprime credit scores in the second quarter of 2025.
The Q2 numbers, including the significant increase in delinquencies, were reported in the Quarterly Report on Household Debt and Credit. According to the report, auto loan delinquencies have seen a notable rise, particularly among the youngest borrowers (ages 18-29) and those with subprime credit scores.
The share of loans delinquent over 90 days for the youngest age category increased from 2.43% a year ago to 4.58% in Q2 2025. This rise in delinquencies also affected the overall auto loan delinquency rate, which rose from 4.43% to 4.99% year-over-year.
Key factors contributing to this trend include increased auto loan originations, heavy dealership traffic and market timing, credit risk concentration, and rising debt burdens on younger borrowers.
Auto loan originations totaled around $188 billion in Q2 2025, a 4.9% increase year-over-year. This growth was driven by stronger originations in the prime borrower category, but subprime borrowers also saw notable borrowing.
A surge in dealership activity occurred at the end of Q1 2025, as buyers rushed to beat new tariffs on imported vehicles and parts. This surge led to loan originations late in Q1 and early Q2, which are now showing early signs of delinquency.
Subprime borrowers and younger buyers have been a growing concern due to their higher risk of delinquency, exacerbated by economic pressures and tighter personal finances. Younger adults have been taking on more debt recently, including auto loans, leading to stress on their ability to keep up with payments.
While overall auto loan delinquency flows remained relatively steady in modeling terms, the increase in 90-day delinquencies specifically among younger and subprime borrowers highlights the greater financial vulnerability of these groups.
It's important to note that while the report focuses on auto loan delinquencies, changes in federal reporting policies have affected overall household delinquency statistics, particularly in student loans. However, this factor is separate from auto loan trends.
In contrast to the rise in auto loan delinquencies, the demand for auto loans and leases was strong in the second quarter, with the biggest growth in the highest credit-score category. The highest credit-score category (760 or higher) accounted for $75.1 billion in originations, a 14.5% increase compared to the previous year. However, the share of originations decreased for all other credit-score categories.
The rise in auto loan delinquencies among younger borrowers and those with subprime credit scores, as highlighted in the Quarterly Report on Household Debt and Credit, could potentially impact the industry's finance sector, as these groups bear a higher risk of delinquency and are stretching their personal finances. Despite the steady overall auto loan delinquency flows, the significant increase in 90-day delinquencies among these vulnerable groups indicates a potential financial instability in the industry's subprime finance segment.
