A growing number of Americans with auto loans are at financial risk — only a fraction of people have it enough savings to cover six months of living expenses, according to a J.D. Power study.
This trend presents itself as nNew auto loan interest rates reach their higher levels in two decades, car insurance rates climband new vehicle prices rise.
“Auto lenders really need to adapt their offerings to the realities of the current market and recognize that a large portion of their customers may face very real challenges in managing their finances,” said Patrick Roosenberg, senior director of automotive financial intelligence at JD Power. in a statement.
The 2024 study found an increasing percentage of “financially vulnerable” customers, along with an even greater decline in “financially healthy” customers. J.D. Power measured borrowers’ financial health by looking at their spending rates, savings rates, credit scores and safety net resources such as insurance, plotting the outcome on a continuum ranging from “healthy” to “vulnerable”.
According to J.D. Power, the number of financially vulnerable customers in the mass market increased by 11 percentage points compared to 2021, while the number of those considered financially healthy decreased by 13 percentage points.
Of borrowers considered financially vulnerable, only 1% said they had enough funds to cover six months of living expenses should a financial emergency arise.
To help consumers mitigate financial hardship, Roosenberg recommended that lenders incorporate flexibility into their bill payment processes, such as ensuring that digital bill payment tools have options for payment extensions or due date changes . He also suggested that lenders offer budgeting or financial planning advice for borrowers.
Supporting JD Power’s conclusions, the The Federal Reserve reported this in September that auto loan default rates had risen to higher levels by the end of 2023 than before the pandemic, driven primarily by borrowers’ higher monthly payments. Additionally, the average amount of negative equity debt owed by Americans on auto loans reached its highest level recorded in the third quarter of 2024, according to Edmunds.
The study aims to gain insights into the experiences and preferences of new borrowers of used or new vehicles. The most recent iteration was based on responses from 11,071 drivers who financed a new or used vehicle in the past three years.