Slammed by interest rates, many Americans can't afford their car payments (2024)

FAQs

Why are Americans falling behind on car loans? ›

Experts are putting part of the blame on the high interest rate environment. Today, the average new car loan interest rate is sitting at 7.9%, up from the 4.18% in July 2021, which is right before the Fed started raising interest rates, according to data from Bankrate.

You may unsubscribe at any time. That means that more than 60 percent of American households currently cannot afford to buy a new car, based on Census data. For individuals, the numbers are even worse, with 82 percent of people below the $100,000 line.

According to the Federal Reserve of New York, Americans are further behind on their auto loan payments than any other common form of debt. Among those who are delinquent, or behind on their car payments, the average percent of balance that's overdue is slightly more than 6%. Credit card debt follows in second place.

More Borrowers Are Falling Behind On Auto Payments

“Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in earlier years, perhaps because buyers during these years faced higher car prices and may have been pressed to borrow more, and at higher interest rates.”

Mortgage debt is most Americans' largest debt, exceeding other types by a wide margin. Student loans are the next largest type of debt among those listed in the data, followed closely by auto loans.

Americans are having a harder time making interest payments as savings are shrinking and a barrage of interest rate hikes by the Federal Reserve has jacked up the cost of financing.

"Simply put, cars have become more expensive," Joseph Yoon, consumer insights analyst at car consumer guide Edmunds—an online resource for cars inventory and information—told Newsweek. "In November 2019, the average transaction price for a new vehicle was $38,500. In November of 2023, that figure jumped to $47,939."

While inflation and interest rates are backing away from recent highs, insurance premiums have soared by double digits in the past year. Many buyers are now surfing on waves of vehicle depreciation, picking up used and off-lease cars and trucks still under warranty for thousands less than new. That's smart.

Millionaires Avoid Car Payments

And more importantly, 8 out of 10 millionaires buy their cars with cash and don't have a car payment to worry about. In fact, research done by Ramsey Solutions found that non-millionaires are twice as likely as millionaires to have outstanding car loans.

How much of my salary should I spend on a car payment? According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.

What is the average debt in the US? ›

According to Experian, average total consumer household debt in 2023 is $104,215. That's up 11% from 2020, when average total consumer debt was $92,727.

More Americans have fallen behind on their credit card payments over the past year than at any other time in the last decade, with 9.1% of accounts hitting “delinquency” status. Car loan delinquencies hit a 10-year high, too, landing at around 8%.

The average monthly car payment is $734 for new cars and $522 for used. Several factors determine your payment. Shannon Bradley is a NerdWallet authority on auto loans. Before joining NerdWallet in 2021, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry.

By the numbers: Roughly 8% of auto loan balances were at least 30 days past due in the second quarter of this year, the New York Fed said last month — a higher share than pre-pandemic times. That has moved from the recent low of 5% in 2021, when consumers were flush from pandemic-era stimulus.

U.S. consumers are thriving by most measures, except this one. What's new: Delinquency rates for nearly all loans have been rising from the rock-bottom levels seen during the pandemic, according to data from the New York Fed released Tuesday.

More Americans are defaulting on their car loans due to larger loan amounts, high interest rates, increased living costs and more.

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”

The prices of new and used cars are normalizing, but sales have flatlined, Bank of America says. Consumers are still priced out of the market because of rising interest and insurance costs. Some have turned to electric vehicles and hybrids, with EV loan originations rising steeply.