Americans now should a total of $1.2 trillion in auto loan debt — enough to buy 53 million Toyota Camrys at $23,000 a pop. This, according to data collected by LendingTree and found in the Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York.

This level of auto debt is nearly double what it was just 10 years ago, and balances have been climbing for all but two quarters since 2010. In the fourth quarter of 2019, TransUnion estimated that the average auto borrower had a balance of around $18,500.

Key Takeaways

  • Auto loan debt held by American's rose to a record $1.2 trillion at the start of the year 2020.
  • Auto loans now make up nearly 10% of all household debt, the third largest debt category behind mortgages and student loans.
  • While auto loan debt continues to rise, the percentage of delinquent borrowers remains at a lower than average level and auto sales remains strong — for now.
U.S. auto loan debt
U.S. auto loan debt.

Auto Loan Debt Increases with Total Household Debt

Auto loans currently make up 9.5% of all household debt outstanding. Americans’ increasing auto loan debt comes along with increasing total household debt, which stands at just under $14 trillion as of January 2020. Auto loan debt is the third largest category of American household debt after mortgage debt ($8.9 trillion) and student loan debt ($1.5 trillion), each of which has increased steadily since 2011.

Not only did the total amount of auto loans increase, 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.” Peak times for people to take out auto loans are March, May and August. In March 2005, Americans took out 2 million auto loans; in March 2019, 2.5 million.

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 have remained strong throughout. TransUnion sees auto lenders requiring larger down payments in 2020 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.

Auto Loan Borrower Profiles Look Good

Despite a record amount of auto loan debt, Americans aren't having much trouble keeping up with their car payments — for now. About 7% were 30 or more days delinquent as of Q1 2020, and only 2% of auto loan borrowers were 90 or more days delinquent. After 90 to 120 days of delinquency, lenders consider borrowers to be in default and can repossess their vehicles.

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. The average auto loan rate obtained by people using the LendingTree platform in Q4 2019 was 8.06% APR, but rates increase as credit scores decline.

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 2020, though a turn in the economy could put the brakes on. 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.

Anyone considering an auto loan and worried about rising interest rates ought to utilize with an auto loan calculator to determine what rate their credit score might offer and what price range will still be within their means.