Rates of Americans late on auto loans and credit card bills continue to rise — both are at their highest levels in more than 10 years.
The rise in insolvencies means that more and more people are finding themselves in financial difficulty. When car loan or credit card payments are missed, consumers sink into debt and see notable drops in their credit scores, so it’s usually an outcome that people try to avoid altogether.
A New York Fed report Tuesday showed that 7.7% of auto loan debt was 30 days past due, the highest level since 2010 and a big increase from 6.6% a year earlier.
Auto loan delinquencies are increasing
One reason car owners may be falling behind on loans is simply that new and used vehicles have become much more expensive. Supply shortages in the auto industry have caused car prices to spike starting in 2021, meaning buyers are borrowing more to make their purchases. Auto loan rates have also increased over the past two years. The resulting higher monthly payments are proving challenging for consumers.
“Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in previous years, perhaps because buyers during these years faced higher car prices and may have been pressured to borrow more, and at higher interest rates,” Fed researchers said in a blog post.
Missing credit card payments
Meanwhile, credit card balances have risen sharply and are 14.5% higher than a year ago, as Americans who have lost purchasing power due to inflation increasingly rely on credit cards for their expenses.
It’s best to always pay off your credit card in full each month. If not, you should at least aim to make the minimum payment to avoid fees and harmful effects on your credit score.
Credit card delinquency rates for debts more than 30 days past due rose to 8.5% in the fourth quarter of 2023, up from 5.9% a year earlier. This is the highest level since mid-2011.
Credit card delinquencies measured by debt at least 90 days late are also at the highest levels in 10 years — and the same is true for auto loans.
Lower-income and younger families are at greater risk of falling behind on payments right now, according to the Fed.
More from Money:
10 Best Auto Refinance Companies February 2024
Auto loan denial rates are at record levels — here’s how to improve your chances of approval
13 Best Credit Cards of January 2024