Americans shouldered a total of $1.22 trillion in auto debt last quarter – enough to buy 53,043,478 Toyota Camrys at $23,000 a pop. Consumers’ auto loan balances were 0.7% higher in the fourth quarter of 2017, according to the latest data from the Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York.

That’s $64 billion more than consumers were carrying at the end of 2016 and $8 billion more than they were carrying at the end of the third quarter 2017. Balances have been climbing for the past six years. In the fourth quarter of 2017, TransUnion estimated that the average auto borrower had a balance of $18,588.

Graph of non-housinf debt balance since 2004.

Auto Loan Debt Increases with Total Household Debt

Americans’ increasing auto loan debt comes along with increasing total household debt, which rose by $193 billion (1.5%) from the third quarter of 2017 to a total $13.15 trillion at the end of 2017. Auto loan debt is the third largest category of American household debt after mortgage debt ($8.88 trillion) and student loan debt ($1.38 trillion), and it has increased steadily since 2011.

Not only did the total amount of auto loans increase in 2017, but the total number of originations, or new loans, increased as well. The New York Fed described it as “the highest annual auto loan origination volume observed in [our] data.” The fourth quarter of 2017 alone saw $137 billion in auto loan originations.

Cheap credit and strong employment undoubtedly helped more Americans buy cars last quarter. But as interest rates increase, consumers with variable-rate credit card debt might see their credit card payments rise, which could make it harder for them to make their auto payments. Higher interest rates are also likely to mean less borrowing unless wages go up significantly to allow borrowers to afford the higher monthly payments.

Auto sales had a strong year in 2017, though not quite as strong as in 2016. TransUnion sees auto lenders requiring larger down payments in 2018 to account for larger amounts financed, longer loan terms and lower used-car values. It expects little increase in seriously delinquent auto loans but says auto lenders have shown more preference for better qualified, lower-risk borrowers. (For a comparison to 2013 and tips on how much to borrow to buy a car, see Americans Are Borrowing More to Buy Cars – But Should They Be?)

Auto Loan Borrower Profiles Look Good

Most Americans aren't having trouble keeping up with their car payments. About 7.5% were 30 or more days delinquent. But only 2.3% of auto loan borrowers were 90 or more days delinquent at the end of December, a slight decrease from 2.4% at the end of September. Somewhat troubling, however, is that this number has grown steadily since 2012. After 90 to 120 days of delinquency, lenders consider borrowers to be in default and can repossess their vehicles. (Learn more in What are the differences between delinquency and default? and Options for When You Can No Longer Afford Your Car.)

The median credit score for auto loan borrowers was 707, the highest since 2011, but below the 740 threshold generally considered to be very good. With a score of 707, a borrower is considered to pose a medium risk to lenders; the delinquency rate is 8%, as opposed to 2% and 1% for very good and exceptional borrowers, respectively. The median borrower could expect to get a rate of 3.99% APR on a new auto loan, while a borrower with an exceptional credit score of 780 or higher could expect to pay 3.08% APR. One with fair credit in the 601 to 660 range could expect to pay 6.83% APR. (Learn how your credit score works in The 5 Biggest Factors That Affect Your Credit.)

Graph showing auto-loan originations based on credit score. Not the increase in auto-loans.

Even auto borrowers in the lowest 10% in terms of credit score, with a median score of 575, can get loans, but they’ll pay a steep price: 11.11%.

With the market-wide increase in interest rates we’ve seen over the past few months, it’s not surprising that the average 60-month APR on a new car loan has increased from 4.29% at the end of last November to 4.55% as of mid-February. But the best rates are available when you get a new car from the manufacturer and shorten your loan term. The average rate on a 36-month loan is a mere 1.87%, according to a WalletHub study published this month. The next-best rates come from credit unions, at 2.61%. (In the market for new wheels? Read How to Get the Best Price on a New Car and How Interest Rates Work on Car Loans.)

Interpret Auto Loan Debt with Cautious Optimism

Ray Boshara, senior adviser and director of the Center for Household Financial Stability, wrote in December that consumer debt has grown almost twice as quickly as household income over the past five years, and consumer debt has reached an all-time high of 26% of disposable income. This increasing debt could indicate consumer optimism about the economy. It could also mean that consumers have paid off their old loans and now qualify for new ones. But it could also indicate that families are under financial stress and need to borrow to pay for necessities.

If more borrowers become delinquent on their debt, economic growth could suffer. Higher household debt may boost short-term GDP growth over one to two years, but suppress it after that. When consumers take on more debt, they eventually have to pay it off. If they keep overspending, if a recession hits or if their income falls, debt payments will take a hit.

The Bottom Line

Americans’ auto loan debt continues to increase. Increasing interest rates may force car buyers to borrow less in 2018, though additional cash flow from the Trump tax cuts could offset that pinch. Consumers’ borrowing and buying habits indicate continued optimism about the economy, but if consumers aren’t careful to avoid overextending themselves, leaner times could be in store.