Growing Automotive Loan Sector Accompanied by Increase in Overdue Payments
In the second quarter of 2025, auto loan delinquencies have seen a significant increase, particularly among younger borrowers and those with subprime credit scores. According to New York Fed analysts, after 90 days of delinquency, auto loans are likely to default.
The Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York for the second quarter of 2025 highlights this trend. The percentage of auto loan delinquencies of 90-plus days in the second quarter was 4.99%, an increase from 4.43% a year ago. More worryingly, the percentage of 18 to 29-year-old borrowers transitioning to 90 days-plus delinquency in the second quarter was 4.58%, an increase from 2.43% a year ago.
This increase is particularly noticeable among younger borrowers and those with subprime credit scores, who are reportedly facing elevated delinquency rates on auto loans and credit cards, reflecting difficulties in managing debt obligations in the current economic environment.
New York Fed analysts express concern over this trend, particularly for young borrowers and borrowers with subprime risk. They attribute the rise in delinquencies to economic challenges impacting these segments more acutely, rising household debt burdens, strong demand and expansion in auto loan originations, and potentially looser lending standards in the subprime segment.
The biggest growth in auto loan originations was seen in the highest credit-score category (760 or higher), which accounted for $75.1 billion in originations, a 14.5% year-over-year increase. However, this growth in prime credit score categories does not offset the increasing delinquency rates in the subprime segment.
The demand for auto loans and leases was strong in the second quarter, with total originations for new- and used-car loans and leases reaching $187.9 billion, an increase of 4.9% year-over-year. Despite this growth, the share of originations decreased for all other credit-score categories, with the highest credit-score category (760 or higher) representing a 40% share of auto originations in the second quarter, up from 36.6% a year ago.
The rise in auto loan delinquencies among younger and subprime borrowers reflects underlying financial vulnerability in these groups amid expanding auto credit markets and broader debt accumulation. This trend presents cautionary signals for lenders and policymakers alike, signalling higher credit risk, potential ripple effects on consumer spending and financial health, and indications of evolving credit cycle dynamics. If economic conditions do not improve, this could lead to tighter lending criteria, higher interest costs, reduced availability of credit for riskier borrowers, and possibly future credit tightening or increased defaults.
The increasing delinquency rates in auto loans, particularly among younger borrowers and those with subprime credit scores, pose a concern for the personal-finance sector of the industry. This trend, which is attributable to economic challenges, rising household debt burdens, and potentially looser lending standards in the subprime segment, could lead to tighter finance regulations for business operations in the future.
