More Americans Fall Behind on Car Loans as Student Repayments Resume
New data shows US auto loan delinquencies rose to 5.1% in Q1 2025, driven by resumption of student loan repayments, high interest rates and inflation — hitting younger borrowers and Southern states hardest and squeezing budgets.
- Delinquencies rose to 5.1% in Q1 2025, per the LendingTree study.
- Gen Z and millennials face the highest strain — Gen Z at 7.5%, millennials at 6.9%.
- Regional gap: rates range from 3.2% in several low-rate states to 9.8% in Mississippi; Southern states are worst affected.
- Student loans are a key driver: subprime borrowers with student debt saw delinquencies jump sharply after repayments resumed (Morningstar / MarketWatch).
What’s happening now
Auto loan delinquencies in the US climbed to 5.1% in Q1 2025, meaning more than one in 20 borrowers missed at least one payment. The rise is broad but uneven: Southern states and younger borrowers bear the brunt. The trend links higher monthly payments with greater missed payments — for example, Texas and Mississippi have some of the highest average monthly payments and elevated delinquency rates.
Generations under pressure
Younger borrowers are struggling most. The LendingTree study reports:
Gen Z: 7.5%; Millennials: 6.9%; Gen X: 4.3%; Baby boomers: 1.9%.
Analysts note younger buyers often took loans with longer terms or higher interest during the payment pause, then saw budgets tighten when student loan payments resumed — increasing the likelihood of missed auto payments.
The student loan connection
The resumption of federal student loan repayments is a major driver. A MarketWatch analysis via Morningstar / MarketWatch shows subprime borrowers with student debt saw delinquencies rise from 3.8% in December 2024 to 6.3% in June 2025 — a 67% increase. That timing points to payment resumption exposing borrowers who added car debt while student loans were paused.
“Missed student payments can lower credit scores, raise auto loan costs, and create a cycle that increases repossession risk.”
Economic context and risks
Rising delinquencies occur amid stubborn inflation and higher interest rates. Although unemployment is relatively low, wages for many households have not kept pace with costs. Total auto loan balances fell 0.8% in Q1 2025 to $1.642 trillion, suggesting fewer new loans or tighter lending, but that decline hasn’t stopped delinquencies from rising.
Longer-term, auto loan delinquencies are up more than 50% over the last 15 years, reversing a pandemic-era dip (AOL).
Where delinquencies are worst
The issue is concentrated in the South. States range from 3.2% (Alaska, Utah, Washington, New Hampshire) to 9.8% in Mississippi. States with larger average monthly payments — for example, $867 in Texas and $802 in Mississippi — tend to show higher delinquency rates, reflecting local cost-of-living and wage pressures.
What lenders and borrowers say
Lenders have largely avoided mass repossessions to protect resale values and limit regulatory scrutiny, often offering short-term relief or repayment plans. Borrowers describe difficult choices: pay for transport for work or cover essentials like housing, groceries, and now student loans. Those choices often put car payments at risk, particularly for younger workers without savings buffers.
Implications for the United States
Economic and policy risks
Continued high delinquencies could slow consumer spending and strain local economies tied to car sales and services. Policymakers face pressure to balance fiscal priorities while addressing cross-market spillovers from student loan policies. Lenders may tighten credit or raise rates for subprime borrowers, restricting access for younger Americans.
Household and workforce impact
Transportation is critical for employment; increased repossessions could hurt workforce participation and increase commute burdens. Rising Gen Z delinquency could delay milestones like homebuying and savings accumulation, with long-term economic consequences.
Political and regional consequences
Southern states may face greater demand for social services and workforce support. The data underscores trade-offs in designing relief programs: temporary pauses can provide short-term relief but may lead to later strain if borrowers take on new obligations during the pause.
Practical steps for borrowers and policymakers
- For borrowers: review budgets, contact lenders early if you miss payments, and pursue refinancing only if it lowers total monthly costs.
- For lenders and regulators: monitor subprime trends and consider targeted options that prevent repossession while protecting loan books.
- For policymakers: track cross-market effects of loan programs and provide clear timelines and support to prevent sharp shocks when relief ends.
Sources
LendingTree: Auto Delinquency Rates Study
Morningstar / MarketWatch: Why more people are falling behind on car loans; the student-loan payment pause gives a clue
AOL: Auto loan delinquencies over 50% in 15 years
