Behind the Wheel and Behind on Payments: Analyzing the Rise in Auto Loan Rates and Buyers’ Struggles

auto loan delinquency

The auto industry is steering through a terrain marked by increasing loan rates and delinquencies, facing the dual challenge of maintaining profitability while uncovering ways to assist consumers in purchasing the vehicles they desire and need. Dealerships dedicated to reducing financial stress for buyers, particularly auto loan delinquency, and enhancing customer service are adopting innovative financial strategies and prioritizing the customer’s needs. Let’s explore how beneficial financial solutions and a strong commitment to service play a vital role in fostering mutual benefit for both customers and dealers.

Interest Rates Hit the Brakes on Affordability

With inflation impacting every sector, the auto industry is grappling with its own set of challenges. The Federal Reserve’s efforts to control inflation by raising interest rates have escalated the cost of auto loans, adding another layer of pressure for car buyers. Coupled with lingering pandemic-related supply chain disruptions, vehicle prices have soared. Last month, the average new car loan rates jumped to an alarming 9.7%, up 130 basis points year-over-year (YOY), making car ownership a dream out of reach for many. Additionally, Cox reports that the average loan rate for used vehicles escalated by over 30 basis points, surpassing 14%—a notable surge of 120 basis points YOY. This rise in loan rates for both new and used vehicles significantly strains prospective buyers, further complicating the path to car ownership.

Auto Loan Delinquency on the Rise

The financial squeeze isn’t just a perception; it’s a reality reflected in rising delinquency rates, particularly among younger and low-income borrowers. F&I Showroom reports a concerning trend: nearly 8% of auto loans were delinquent by the end of last year, with serious delinquencies—those 90 days or more overdue—increasing to about 2.7% from the previous year. These statistics are a stark reminder of the real challenges people face in maintaining vehicle ownership, underscoring the need for adequate financial solutions and support.

Shifting Gears: Solutions on the Horizon

Strategy #1: Easing the Financial Burden

Customers find themselves in a challenging position, caught between historically high prices of new vehicles and used vehicles pricing that, despite a slight decline, still hover near all-time highs. Compounding this challenge, lenders are tightening their belts, limiting both the terms and the amounts they’re willing to finance, which adds another layer of difficulty for buyers. In this tough spot, BudgetCare stands out as an affordable coverage option. It provides a cost-effective solution for consumers seeking protection against costly repairs, while also enabling dealers to offer quality coverage at a reasonable price, maintaining profitability. This approach assists customers in navigating financial constraints and enhances dealer offerings in a competitive market.

Strategy #2: Smart Financing Options

Finance and Insurance (F&I) teams play a pivotal role in the car buying journey, serving as financial navigators who champion the financial well-being of customers. By utilizing their deep knowledge and innovative tools like Smart Payment Solutions, F&I experts are equipped to craft personalized, sustainable payment strategies that enhance vehicle affordability. This method leads to manageable monthly payments, alleviating financial pressure for buyers. In turn, it cultivates a more sustainable ownership experience and improved cash flow for dealerships.

Driving Innovation and Affordability in Auto Ownership

In these turbulent times, the auto industry continues to forge ahead, embracing innovative solutions that ensure peace of mind behind the wheel.
This move towards greater affordability is multifaceted. Coverages like BudgetCare ease the burden of unexpected repairs, whereas dealership teams draw on their expertise to help create personalized payment plans. This dual approach mitigates financial stress for consumers and enhances the value provided by dealerships, making vehicle ownership more accessible and manageable for a wider audience.

Your Partner in Profitability

With over three decades of experience in the auto industry, our commitment to supporting dealerships with strategic insights and tools remains unwavering. By fostering partnerships and sharing knowledge, we strive to enhance profitability and deliver value to dealers and consumers. For those interested in exploring how these strategies can be implemented to navigate the current economic challenges and auto loan delinquency, our PRO Team is ready to share our expertise and become your partners in profitability. Let’s connect to discuss your specific needs.


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