Struggling Young Homebuyers Face Delinquencies, Yet Lenders Approve Loans Despite This Issue
In the automotive market, a striking trend has emerged: auto loan delinquency rates are on the rise among Generation Z and Millennial buyers. This is primarily due to the financial pressures these younger cohorts face, particularly significant student loan debt and the challenges it presents in managing multiple loan payments.
According to recent data, Millennial buyers are averaging $30,800 for new vehicle loans, the highest among all age groups. This trend is further illustrated by the fact that 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.
However, delinquency rates for Gen Z and Millennials are higher, with 60+ days past due delinquency rates of 1.93% and 1.98%, respectively, in the first quarter of 2025. This is a concerning increase from the pre-pandemic average of around 1.4%.
Several key factors are contributing to this trend. Firstly, the substantial student loan obligations that Gen Z and Millennials carry, averaging over $500 monthly for many in Gen Z, significantly reduces their disposable income available for auto loan payments.
Secondly, the accumulation of debt and difficulties with student loan repayments have led to worsened credit scores, making it more challenging for younger buyers to qualify for favourable loan terms. This, in turn, contributes to higher delinquency rates.
Thirdly, lenders continue to approve loans for younger buyers, despite the risks involved. This practice results in higher delinquency rates as these consumers struggle to meet repayment obligations.
Furthermore, the broader household debt, which has climbed to $18.2 trillion, exacerbates financial pressures on younger borrowers who often have less accumulated wealth and fewer resources to buffer against economic shocks.
Despite these challenges, dealers should not worry about the ability of Gen Z and Millennials securing loans, as they still have a lot of access to credit. However, the rising average transaction price for a new vehicle, currently standing at $48,907, contributes to the increasing delinquency rates among these age groups.
It is worth noting that while Gen Z and Millennials are grappling with these financial pressures, older generations, such as those aged 55 and over, are increasingly becoming the dominant force in the market. In the first quarter of 2025, this demographic accounted for 48.6% of new registrations, up from 44.8% in the same period the previous year.
In conclusion, the interplay of substantial student loan obligations, credit challenges, and ongoing borrowing in an expensive credit environment explains why auto loan delinquency rates are notably higher among Gen Z and Millennial buyers compared to older age groups. It is crucial for lenders and dealers to consider these factors when extending credit and for policy makers to address the issue of student loan debt to help alleviate the financial burdens on younger generations.
[1] Source: TransUnion data [2] Source: Experian data [3] Source: Federal Reserve Bank of New York data
The elevated average transaction price for a new vehicle is a contributing factor to the rising auto loan delinquency rates among Millennials and Generation Z, currently standing at $48,907. In terms of personal finance, this high price can strain the disposable income of these younger buyers, who often face significant student loan obligations and worsened credit scores.
Due to the ongoing financial challenges faced by Millennials and Generation Z, such as student loan debt and higher delinquency rates, older generations, particularly those aged 55 and over, are increasingly becoming the dominant force in the automotive market, accounting for 48.6% of new registrations in the first quarter of 2025.
