Delinquencies on auto loans are expected to stabilize this quarter and decline in the final three months of 2025 as the overall economic picture improves and consumers are feeling better about their personal financial positions, according to a report released Wednesday by global information and insights company TransUnion.
The TransUnion 2025 Credit Forecast predicts the percentage of auto loans more than 60 days delinquent this year will come in at 1.45%, just about flat with the 1.42% rate in 2023, but then fall to 1.38% in the fourth quarter of 2025, a seven basis points improvement.
What’s happening is some light at the end of the dark economic tunnel dug by the Covid-19 pandemic almost five years ago, observed Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
When the pandemic first took hold in the U.S. in March, 2020, commerce and spending suffered from shut downs and quarantines, but rebounded when consumers were able to pay down their bills and return to spending once they received federal economic stimulus funds.
But that windfall lasted only so long for some consumers who failed to stash any of it away causing the delinquency rate for personal and auto loans to climb to 4.14% in 2022, according to Raneri.
Since then, however, with an improving economy and the pandemic in the past, the trend has gradually reversed.
“In the past couple of years, we’re starting to see this mitigate a little bit, and we’re starting to see a moderation,” said Raneri, in an interview. “So for the next year, our forecast is showing that there’s a moderation of the delinquency rate. So it’s kind of marking, I think, the end of this volatility that we’ve seen in the pandemic era.”
But Raneri cautions there’s a big difference in the delinquency rate between consumers paying off new and used vehicles.
“It’s actually in the used automobile, and particularly in the subprime and below prime market, that we’re seeing increases still in delinquency,” Raneri said. “So those consumers who already have blemished credit and are looking at used vehicles are probably those that are still going to have higher delinquencies.”
While the rate of consumers 60 days or more behind on their auto loan payments appears to be ebbing, not so for the balances consumers are carrying on their credit cards.
The TransUnion report predicts credit card balances will increase to $1.09 trillion by the end of 2024, representing a year-over-year increase of 3.9%.
That trend is expected to continue into 2025 with a 4.4% rise in credit card balances to $1.1 trillion by the end of next year, according to the TransUnion report.
Even so, the expected increases are well below the year-over-year growth seen in 2022 and 2023 of 18.5% and 12.6%, respectively.
How does even moderate growth in credit card balances relate to consumers’ ability to make on-time payments on their auto loans?
It’s a matter of priorities, asserts Paul Siegfried, TransUnion senior vice president and credit card business leader.
“We’re forecasting moderate growth, which seems in line with the consumer as it relates to auto spending or auto performance. I guess I would say, auto still gets paid before cards in the payment hierarchy,” said Siegfried, in an interview. “So, consumers, if they have a job, they’re going to drive to go to work. As an example, the number one use of a vehicle is to actually go to work. So I think you’ll continue to see that payment hierarchy in place, in that they will outperform cards in terms of performance.”