Struggling Young Homebuyers Face Delinquencies Yet Continue to Secure Loans from Lenders
In a recent analysis, it was found that Gen Z and Millennial car buyers are experiencing higher auto loan delinquency rates compared to older cohorts. The primary drivers of this trend are heavier monthly car payment burdens and overall affordability challenges.
Gen Z borrowers have the highest delinquency rate at 7.5%, followed by Millennials at 6.9%. In contrast, Gen Xers and Baby Boomers have significantly lower rates at 4.3% and 1.9%, respectively [1].
One of the key contributing factors is the high monthly payments relative to income. Younger generations, particularly in economically challenged regions, often face larger monthly auto payments. For example, in southern states where delinquency rates are highest, payments often exceed the national average of $751, with states like Texas averaging $867 per month [1].
Another factor is the economic environment and interest rates. While direct data on auto loans was not provided, rising interest rates have increased borrowing costs across sectors, reducing affordability. Recent volatility in interest rates, notably in mortgages, suggests a tougher credit environment that likely affects auto loans too [2].
Regional economic disparities also play a significant role. Southern states show the highest delinquency rates and car payment burdens, indicating regional economic stress that disproportionately impacts younger borrowers in those locations [1].
Looking ahead, as Gen Z and Millennials age, improve their credit profiles, and increase earnings, delinquency rates may stabilize or decrease. However, ongoing high living costs, inflation, and potentially persistent higher interest rates could sustain some pressure on affordability and delinquency among younger borrowers going forward.
Other findings include the average transaction price for a new vehicle in June reaching $48,907, up 1.2% compared to the same month in 2024. Millennial buyers are buying more expensive cars than any other cohort, averaging $30,800. Lenders are willing to lend more than $30,000 to Millennial buyers [1].
The share of new-vehicle registrations by adults aged 18 to 34 fell from 12% in the first quarter of 2021 to 9.9% in the first two quarters of 2025, partially attributed to affordability issues, including available inventory within an appropriate price range [1].
In terms of loan balances, Millennials accounted for the highest new auto loan account balance overall at 33.9% of the total balance of $173.7 billion in the fourth quarter of 2024. Millennial loan balances grew by only 1.7% in the first quarter of 2025, slower than in the same quarter in 2024 [1].
Delinquency rates in general have risen since before the Pandemic. In the first quarter of 2025, Gen Z and Millennial car buyers had 60+ days past due delinquency rates of 1.93% and 1.98%, respectively. Gen Z loan balances were the fastest growing in the first quarter of 2025, at 15.4%, down from the same quarter in 2023. Gen X consumers had delinquency rates of 1.42% and Baby Boomers had the lowest at 0.87% in the same quarter [1].
Despite these high delinquency rates, dealers need not worry about the ability of Gen Z and Millennials securing loans, as they still have a lot of access to credit. It is expected that delinquencies for Gen Z and Millennial car buyers will improve as they mature and learn to manage their credit better.
References: [1] Edmunds: "Gen Z and Millennial Auto Loan Delinquency Rates on the Rise" [2] Federal Reserve: "Interest Rates and the Economy"
- The analysis revealed that younger generations, such as Gen Z and Millennials, are actively exploring personal-finance avenues, including investing in real-estate and financing expensive cars, to build long-term wealth, despite facing higher auto loan delinquency rates.
- To mitigate the high auto loan delinquency rates and further increase purchasing power, some Gen Z and Millennial borrowers are considering alternative investing strategies, like real-estate and broadening their understanding of finance, in order to manage their finances more effectively and ensure a stable financial future.
