Missed Car Payments Expose Strained Household Budgets

A tow truck can take away the means of making the next payment. The Consumer Financial Protection Bureau^[1] notes that repossession can prevent a borrower from getting to work. For someone who depends on that car, I would expect its payment to be among the last bills to slip. Serious auto delinquency therefore warns me that household budgets are running out of room. That warrants attention without making every missed payment a forecast of the next banking collapse. The buyer still owns the contract.

The New York Fed’s second-quarter figures put the four-quarter flow of auto debt into serious delinquency at 2.9%, against 2.4% at the end of 2019.^[2] The last three quarters have brought the highest auto flows since early 2010, though still below the 2009 peak of 3.5%. Credit-card flows stand at 6.9%, against 5.3% at the end of 2019; mortgages, at 1.3%, remain far below their 2009 peak of 8.4%. Each quarterly flow compares balances newly at least 90 days late with the previous quarter’s balances not already that late;^[3] the four-quarter measure adds four of those flows.^[4] It counts dollars of debt, not borrowers.

Balances becoming 90 or more days delinquent, by loan type, 2003 to 2025

The payments grew because the loans did. In a September 2024 Federal Reserve Board note, Robert Adams, Vitaly Bord and Haja Sannoh^[5] found that average required monthly payments rose from $470 in January 2020 to about $600 in January 2023, driven mainly by loan size rather than interest rates. Car prices had climbed about 30% from January 2020 to September 2022. Their analysis associated higher payments with a greater chance of falling more than 30 days behind, after accounting for credit scores, neighborhoods and other borrowing. They estimated that the payment increase could explain about 40% of the rise from the end of 2019 to the end of 2022 in delinquency within two years of origination. A contract can be freely signed without being comfortably affordable.

The strongest case against alarm comes from the New York Fed’s second-quarter release:^[3] auto and card flows were largely stable, and mortgage performance remained historically strong. An elevated level is not a fresh acceleration. Nobody needs a Mercedes-Benz to get to work, either. But the auto flow has plateaued near its highest level since early 2010. In their February 2024 analysis, Andrew F. Haughwout and his New York Fed coauthors^[6] found flows into 30-day delinquency slightly above pre-pandemic levels in every ZIP-code income quartile, with the greatest rise in the lowest. I take that strain seriously without excusing a buyer who stretches for a badge.

Tighter lending rules have a serious case: the Federal Reserve Board researchers found that lenders appeared to relax standards as loan sizes grew.^[5] Teaching buyers arithmetic would leave those underwriting decisions untouched. I still favor financial education first, because buyers need to judge repayment costs rather than rely on loan approval. Meta Brown^[7] and her coauthors, studying changes in state graduation requirements, estimated modest improvements in delinquency and collections from math and financial-literacy education in early adulthood. The benefits faded with age, while economics instruction worsened debt outcomes. That argues for practical arithmetic, not an abstract economics course. Before leaving school, students should compare the total repayment cost of two car loans with different rates and terms, then explain how much of a household budget each would consume. A classroom cannot make a car cheaper or replace a lost paycheck. The arithmetic belongs before the signature. The first lesson in interest should not arrive on a tow truck.