Struggling Borrowers Under 30 Face Delinquencies, Yet Lenders Continue to Approve Them
Rising Delinquency Rates Among Younger Car Buyers
The average transaction price for a new vehicle in June 2025 reached $48,907, a 1.2% increase compared to the same month in 2024. This rise in vehicle prices contributes to the growing delinquency rates among Generation Z (Gen Z) and Millennial car buyers.
Despite the challenges, dealers can breathe a sigh of relief as Gen Z and Millennials still have a lot of access to credit. However, these younger buyers are facing higher delinquency rates, influenced by factors such as high average loan balances, rapid loan growth, and perhaps less matured credit management skills.
In the first quarter of 2025, Gen Z and Millennials had 60+ days past due delinquency rates of 1.93% and 1.98%, respectively, slightly elevated compared to older age groups. Millennials now carry the highest average new auto loan balance, over $30,000, which can strain their repayment ability.
Gen Z's auto loan activity is growing fast, indicating more exposure to credit risk among younger buyers. On the other hand, Millennial loan balances grew by only 1.7% in the first quarter of 2025, slower than in the same quarter in 2024.
Affordability, including available inventory within an appropriate price range, is cited as the "big one" contributing factor to the drop in younger buyer registrations. The share of new-vehicle registrations by adults aged 18 to 34 fell from 12% in the first quarter of 2021 to 9.9% in the first two quarters of 2025.
However, it's important to note that younger buyers typically improve budgeting and credit use as they age and gain income, leading to reduced delinquency over time. Economic and market conditions also play a role in these higher delinquency rates. The broader US auto loan market has seen rising delinquency and default rates recently.
Longer loan terms, growing in popularity to manage higher sticker prices, imply borrowers stay “upside-down” (owing more than the car’s value) longer, which can increase refinance needs and default risks. Factors like used-vehicle price declines and economic weaknesses in certain regions also increase credit risk.
Before the pandemic, the average delinquency rate was around 1.4%. While specific historical delinquency rates for Gen Z and Millennials pre-pandemic are not detailed explicitly, the overall auto loan delinquency landscape worsened when used-vehicle prices retreated from pandemic highs. This eroded collateral values that earlier buffered credit risk.
Despite these challenges, lenders are still willing to lend to Gen Z and Millennials, with Gen Z accounting for the lowest new account balance at 15.1%. Millennials accounted for the highest new auto loan account balance overall at 33.9% of the total balance of $173.7 billion in the fourth quarter of 2024.
As Gen Z and Millennials mature, they are expected to learn to manage their credit better, and their delinquency rates will go down. Gen X consumers had delinquency rates of 1.42% in the first quarter of 2025, and Baby Boomers had the lowest at 0.87%.
By 2022, Gen Z's 60+ days past due delinquency rates were 1.57%, Millennials were 1.41%, Gen X was 1.01%, and Baby Boomers were 0.63%. Despite the higher delinquency rates, dealers should remain confident in the creditworthiness of Gen Z and Millennial buyers, as they continue to demonstrate an interest in insurance and F&I add-ons.
[1] Source: CarGurus, Q1 2025 Auto Finance Report [3] Source: Experian, Q1 2024 and Q1 2025 State of the Automotive Finance Market Reports
- Stepping into the realm of personal-finance, the increasing car delinquency rates among Gen Z and Millennial buyers can influence the investment strategies of finance institutions dealing with real-estate and other assets, particularly those that offer loans, considering the growing credit risks associated with these younger generations.
- To diversify their investing portfolio, finance experts might consider focusing more on established age groups like Gen X and Baby Boomers, who exhibit lower delinquency rates compared to Gen Z and Millennials, and might be more reliable borrowers in the volatile auto loan market.
