Recession Readiness Insights

Understanding Auto Loan Delinquency

Understanding Auto Loan Delinquency

March 04, 2024 | Sharla Godbehere

Clarity around delinquency is a huge topic in the automotive industry and for lenders delinquencies can have a real impact on the bottom line. We asked Tom Aliff, Risk Advisor Leader to answer a few questions below on how delinquencies are impacted by affordability, auto loans terms, inflation, interest rates and more. 

Q: What is affordability, and how does it relate to auto loan delinquency?

A: Affordability is the measure of whether an individual's income can cover their expenses, including debts. It encompasses assessing the costs and total debts against available income sources. Rising delinquency levels in credit card and auto loans, currently at their highest since the Great Recession, indicate challenges in affordability. These trends reflect a crucial balance between financial obligations and income. 

Q: How does inflation and interest rates impact auto loan delinquency?

A: There is a correlation between inflation, interest rates, and auto loan delinquency. As inflation trends stabilize and a "soft landing" is anticipated, interest rates may decrease. Lower interest rates could alleviate some concerns regarding debt servicing. However, these dynamics must be carefully monitored as they directly influence consumers' ability to manage their auto loan payments. 

Q: What are the factors contributing to the increasing monthly payments on auto loans?

A: Monthly payments on auto loans have reached record highs, with many exceeding 750. This trend may stem from various factors, including the rising costs of vehicles, increased borrowing amounts, and extended loan terms. As consumers take on larger loan amounts, it becomes imperative to evaluate their ability to repay and sustain these obligations over time. 

Q: How can the auto industry assess consumers' ability to pay auto loans?

A: The auto industry should employ comprehensive assessments to gauge consumers' ability to repay auto loans. This includes evaluating debts, income, loan-to-value ratios, and credit scores. By integrating multiple financial indicators, lenders can help ensure responsible lending practices and mitigate the risk of delinquencies. 

Q: What considerations are crucial in evaluating consumers' affordability profiles?

A: Understanding consumers' total affordability entails analyzing their debts, income, and financial trajectory. Changes in these factors over time provide valuable insights into individuals' financial stability and their capacity to manage loan obligations. Assessing affordability holistically enables lenders to tailor solutions that align with consumers' financial realities. Therefore, navigating auto loan delinquency requires a multifaceted approach that encompasses economic trends, affordability assessments, and consumer financial behavior. By fostering transparency and proactive measures, stakeholders can mitigate risks and foster sustainable financial practices within the auto lending landscape.

How we can help

At Equifax, we are helping address these challenges for consumers by working with lenders to provide additional insights during the vehicle loan process so lenders can present consumers with the most favorable terms. 

For more on affordability and how at Equifax we are helping, check out our other resources and articles:



Sharla Godbehere

Sharla Godbehere

FinTech Leader

Sharla leads the team focused exclusively on the rapidly evolving FinTech industry. She connects the power of data, technology, and analytics with today's future-designing companies to expedite responsible growth in lending. Sharla assists FinTechs and alternative lenders in leveraging Equifax’s unique data to make bet[...]