Auto Loan Delinquencies Finally Stop Climbing, Hinting At A Credit Turnaround
By CU Today Staff —
NEW YORK—After several years of worsening credit performance, U.S. auto loan delinquencies appear to be leveling off, a potential turning point for lenders. Morningstar DBRS said early-stage delinquencies have held steady for three consecutive quarters while serious delinquencies have also stabilized, suggesting the industry's credit quality may be nearing an inflection point—even though both measures remain well above pre-pandemic levels.
The ratings firm found that 7.7% of auto loans transitioned into early-stage delinquency (30 or more days past due) during the first quarter of 2026, unchanged from the previous two quarters and above the 7.1% recorded before the pandemic. Serious delinquencies (90 or more days past due) remained at 3.0%, compared with 2.4% in the first quarter of 2019. Morningstar DBRS said the stabilization comes despite continued pressure from elevated vehicle prices, higher interest rates and large monthly loan payments that are straining many household budgets.
The report noted that auto finance companies continue to benefit from a healthy labor market and the gradual runoff of weaker 2022 and 2023 loan vintages, which experienced higher-than-expected credit deterioration. Looking ahead, Morningstar DBRS expects captive finance companies tied to automakers to continue outperforming because they primarily serve prime borrowers, while independent lenders focused on subprime borrowers are likely to remain under pressure from inflation and affordability challenges.
Affordability remains the industry's biggest challenge. The average amount financed for a new vehicle climbed to $42,503 in the first quarter, up 6.5% from a year earlier and nearly 38% above pre-pandemic levels. Used-vehicle financing averaged $24,897, also roughly 38% higher than in 2019. At the same time, new vehicle prices remain more than 21% above pre-pandemic levels, while used vehicle prices are still nearly 30% higher despite easing from their pandemic peaks.
The report also found lenders have tightened credit standards rather than expanding subprime lending. Borrowers with credit scores below 620 accounted for 15.6% of auto loan originations in the first quarter, down from 20.1% before the pandemic. Morningstar DBRS warned that lenders seeking to boost loan growth by easing underwriting standards or extending loan terms could see delinquencies and credit losses rise again.
Originally reported by CU Today.