In a recent report by TransUnion, the company projects a stabilization and subsequent decline in auto loan delinquencies over the next year, suggesting a positive shift in the economic landscape and consumer confidence. According to the 2025 Credit Forecast, the percentage of auto loans that are more than 60 days delinquent is anticipated to remain relatively unchanged at 1.45% for this year, with a slight improvement to 1.38% by the fourth quarter of 2025. This marks a notable moment for consumers, as the residual effects of the Covid-19 pandemic on financial behaviors seem to be easing.
The economic landscape following the pandemic has been tumultuous, as observed by Michele Raneri, TransUnion’s VP of U.S. research and consulting. The initial impact of the pandemic in March 2020 led to a significant decline in commerce and consumer spending due to shutdowns. Many consumers saw temporary relief with federal stimulus funds, which allowed them to pay down debt; however, this financial cushion did not last for all. Consequently, delinquency rates for personal and auto loans surged to 4.14% in 2022. The positive shift in economic conditions suggests that we may be witnessing the end of the volatility characterized by the pandemic period, as delinquencies gradually decrease.
Nonetheless, the report highlights a stark disparity in delinquency rates based on the type of vehicle financed. Consumers financing used vehicles, particularly in the subprime and below-prime area, are still grappling with higher delinquency levels. Raneri emphasizes that individuals with poor credit histories are more likely to face challenges when it comes to paying off used car loans, and this trend poses a continuing risk to their financial stability. While the overall delinquency rate for auto loans is forecasted to improve, consumers in the used vehicle market may experience a disparate reality.
In a complementary trend, the TransUnion report anticipates a growth in credit card balances, projecting an increase to approximately $1.09 trillion by the end of 2024, representing a 3.9% year-over-year growth. This upward trajectory is expected to persist into 2025, with credit card balances estimated to reach $1.1 trillion, contributing to a 4.4% annual rise. While this growth is moderate compared to the significant increases seen in 2022 and 2023, it still raises questions about the implications for consumer debt management and financial behavior in relation to auto loans and other liabilities.
The relationship between rising credit card balances and auto loan payment capabilities may come down to consumer priorities, as suggested by TransUnion’s senior vice president Paul Siegfried. He explains that despite the growth in credit card debt, consumers are likely to prioritize making timely auto loan payments over credit card payments, as vehicles play a crucial role in employment and daily commuting. This ‘payment hierarchy’ indicates that consumers will strive to maintain their car payments due to the practical necessity of transportation to work, which is expected to make auto loans safer bets in the credit landscape moving forward.
In conclusion, the TransUnion report outlines a cautiously optimistic outlook for auto loan delinquencies as the economic environment stabilizes. While overall delinquency rates are projected to improve, concerns remain for particular consumer segments, particularly those financing used vehicles. Concurrently, moderate growth in credit card balances draws attention to shifting financial priorities and the ways consumers may manage their debts. The intersection of these trends points to a complex evolution in consumer finance, with economic recovery providing a pathway to greater financial stability for many, albeit with persistent challenges for others.