These new findings are courtesy of TransUnion. The credit reporting agency analyzed data and discovered that the past due rate for members of Gen Z with auto loans is currently 2.21 percent. Before the pandemic, the rate was approximately 1.75 percent. Millennials have also been struggling to make auto loan payments. Pre-pandemic, their past-due rate was about 1.66 percent, compared to 2.14 percent, the past due rate among millennials at the time TransUnion’s research concluded.
Factors Influencing Auto Loan Delinquency Rates Among Younger Americans
Although the pandemic has certainly played a major role in limiting younger Americans’ ability to make timely auto loan payments, it may not be the only factor contributing to this trend. It’s worth noting that the cost of motor vehicles has been quite high in recent years. According to Kelly Blue Book, the average cost of a new car right now is about $46,526. Data from the U.S. Census Bureau indicates that the median household pretax income for American millennials in 2020 was $71,566. Currently, that number is closer to $65,000 for Gen Z. A new automobile represents a substantial investment for a member of Gen Z or a millennial.
Although an auto loan can make a car affordable, young Americans who choose to purchase new vehicles often have to pay close attention to their spending habits to ensure they can afford to make payments on time. Data also indicates that there is little reason to believe the cost of a new car will drop substantially any time in the near future. According to a press release from Cox Automotive, the parent company of Kelly Blue Book, “New-vehicle affordability continues to be much worse now than it was a year ago, when prices were notably lower and incentives were higher. The estimated number of weeks of median household income necessary to purchase the average new vehicle in April was up 18 percent from last year.”
How Spending Habits of Young Americans Can Influence Auto Loan Delinquency Rates
Again, given the fact that the cost of a new car is fairly high when one considers the median income for millennials and Gen Z, making wise spending and saving decisions is critical for any average young American who wishes to purchase a new car. That said, research shows that members of these generations may have trouble in this area. A Sunmark Credit Union study has revealed that the average millennial spends approximately $208.77 per day. In other words, millennials are virtually spending all their annual income and saving very little (or nothing at all). This isn’t meant to suggest that younger Americans are inherently irresponsible with their personal finances. Various factors have made it difficult for millennials and members of Gen Z to live comfortable lifestyles while also saving money. For example, numerous studies have confirmed that the cost of living throughout many areas of the country has risen far more quickly and substantially than wages have.
Young Americans who might have been able to save and live well in the past are now facing new economic challenges that previous generations may have not faced. Regardless, it is still important for millennials and Gen Z’ers who want to own new cars to understand that, while taking out an auto loan can be a wise decision, they will need to ensure they are prepared to make payments on time. There are many ways they can achieve this goal. Along with budgeting properly, young Americans can take advantage of services that essentially help automate the process of saving money or making payments toward auto loans. If millennials and members of Gen Z don’t have to consciously and intentionally set aside money for their loans every week and month, they will likely find that staying on top of payments is easier than it might otherwise seem.