A recent Wallet Hub report identify the states where auto loan delinquency is increasing the most as the overall rate for the last three month of 2023 was 4.17 percent.
According to WalletHub officials, the year-over-year overall comparison showed a 0.75 percent increase in total auto loan debt, reaching $1.6 trillion for the time period. The personal finance company compared the 50 states using its proprietary user data on consumer delinquency rates.
Auto loan delinquency is on the rise due to a variety of factors, said WalletHub analyst, Cassandra Happe.
“Economic challenges like job loss or reduced income, along with increasing debt levels and higher interest rates, put a financial burden on borrowers,” said Happe. “In addition, changes in lending practices and a lack of financial literacy among some borrowers exacerbate the problem.”
Top Five
The top five states when experiencing the most delinquency were three Northwestern states— Washington state, Alaska, and Oregon— Georgia and Rhode Island
Washington had the highest rate of auto loan delinquency 12.9% in the final three months of 2024 than the previous quarter. The state still has one of the lowest auto loan delinquency rates overall, with around 10.7% of borrowers behind on their payments.
Additionally, WalletHub pointed Washington state residents are adding to their auto loan debt at a much slower rate than people in most other states, a sign future increases in delinquency could be minimized.
Issues in the Northwest
Alaska had the second-highest increase at 12.5 for the time period. Unlike Washington, Alaskans have the highest average auto loan debt in the country, which means that interest can easily spiral out of control while people are not making payments, especially when late fees are applied, noted WalletHub.
Alaska ranks toward the middle of the country when it comes to auto loan delinquency rates overall, with around 12.6% of borrowers’ delinquent. The rate for Oregon increased by 11.7% between Q3 2023 and Q4 2023, which ranks third nationally. Like Washington, Oregon still has a low auto loan delinquency rate overall at 10.3% of borrowers are behind on their payments, which beats all but three other states despite the recent increase.
Happe noted that despite the low delinquency rates overall, there is a concerning trend of significant increases in delinquency percentages in the three Northwest states.
WalletHub Analysis
“One possible contributing factor could be the economic landscape, as these states have witnessed a rise in consumer debt, especially in Alaska,” said Happe. “Additionally, economic indicators such as increasing unemployment claims in Oregon and Washington suggest financial strain on individuals, which might impact their ability to make timely payments on auto loans.”
Additionally, Happe the issues in these states is happening despite being a more friendly environment for car buyers.
“Although these states offer benefits for car buyers in terms of sales tax and documentation fees, the high average auto loan debt coupled with the rising delinquency rates indicate challenges in managing repayments for some residents,” she said. “Overall, a combination of economic factors, including consumer debt, unemployment claims, and high vehicle purchase prices, is contributing to the Northwest’s top spots in auto loan delinquency.”
Bottom Five
At 4, Georgia has the highest share of delinquent payments among the top five at 17.6 percent and its rate rose 11.6 percent for Q4 23, underscores significant financial hurdles for auto loan borrowers. Rounding out the top five is Rhode Island, in which the rate jumped 11.4 percent in the fourth quarter.
On the other end, Wyoming had the lowest rate of increase at 1.5 percent. They were followed by Maine at 2.3 percent, Minnesota at 3.0 percent, Montana at 5.6 percent and Iowa at 6.0 percent.
Damaging Credit Score
While falling behind on debt payments can cause long-term credit score damage and cost a lot of money, the consequence of auto loan debt can leave to repossession.
WalletHub Editor John Kiernan advised for car owners that are delinquent on auto loan debt, it is imperative to get their account current as soon as possible to minimize the consequences.
“If you pay fewer than 30 days late, your delinquency won’t be reported to the credit bureaus, though you’ll still likely owe a late fee,” said Kiernan in a press statement. “If you’re more than 30 days late, talk with your lender so they don’t start the process of repossessing your car while you figure out how to pay. Ask if your lender has a hardship plan,or try strategies like cutting other expenses or consolidating debt.”
