In a sign that the economy could be headed for a recession, analysis by Bankrate.com shows that auto loan delinquencies are on the rise, reaching their highest level since 2007.
In 2007, the high default rate on auto loans served as a harbinger of an economic downturn to come, namely the Great Recession which began in December of this year.
The biggest age groups that default on their loans are Gen Z and Millennials.
TransUnion notes that higher percentages of customers between the ages of 18 and 40 had exceeded the 60-day notice period on their auto loans.
Cox Automotivewho own Kelley Blue Book and Autotrader.comnoted that an increased number of auto loans in arrears occurred during the first part of 2022. Cox Automotive also noted that the number of such loans in arrears 60 days has increased since last year.
Financial analysts pointed out that the youngsters failed to repay their loans because they agreed to take on debt they could not afford at the time. In order to keep these loans on the books and not see them default, TransUnion noted that banks and lending groups are adjusting to current economic conditions and offering some forms of leniency to help borrowers.
“To help control monthly payments, we anticipate that lenders may offer consumers options such as extended loan terms to offset affordability issues,” TransUnion noted.
Some financial companies have reported that more Millennials and Gen Zers are getting part-time jobs in addition to their full-time positions as they seek to repay their loans.
In May, the Federal Reserve Bank of New York announced an increase in delinquent auto loans to the 30-day level.