America's consumer-debt stress is mounting - mortgage rates top 7%, credit-card liabilities hit $1 trillion, and now auto-loan defaults are on the rise
- Delinquencies on auto loans are rising again – and this could spell trouble for American consumers.
- Defaults on car loans have risen above pre-pandemic levels to over 2%, per the FDIC.
It's getting harder and harder for Americans to repay their automobile loans, as the Federal Reserve's aggressive interest-rate increases continue to squeeze consumers' wallets.
With the Fed raising rates to a 22-year high, borrowing costs for consumers and companies have climbed – making payments on mortgages, credit cards, and now, cars, more expensive.
The early-stage past-due rate for auto loans – which measures outstanding payments from 30 to 89 days – has climbed above pre-pandemic levels, representing worse credit conditions for Americans, according to the Federal Deposit Insurance Scheme's 2023 risk review.
"The trends in consumer loan performance could deteriorate in 2023 if the labor market or economic conditions soften," the report warned. "The concerning asset quality trends in auto loans may worsen if auto prices normalize."
The rise in auto loan defaults is yet another worry for the American consumer – who must contend with mortgage rates hitting over 7% and an alarming increase in unsecured personal debt to $225 billion in 2023, per TransUnion. US consumer credit-card debt topped $1 trillion last quarter for the first time ever, according to Fed data.
And it is not just individuals who are bearing the brunt of the Fed's tightening campaign – at both institutional and national levels, the spectre of mounting debt continues to climb.
Corporate real estate in particular is suffering: rate rises have increased the cost of commercial mortgages to over 5%, making debt refinancing considerably more expensive.
Commercial real-estate borrowers are struggling to repay under tighter financial conditions and waning demand for office space – and now, the sector must grapple with a rise in delinquencies as the Fed's policy tightening filters through the market.
And on a nationwide scale, America's government borrowings have approached a staggering $33 trillion, with experts such as Ray Dalio and Nouriel Roubini warning it could be the start of a "full-blown debt crisis".