Struggling Young Homebuyers Encounter Delinquencies Yet Secure Loans from Financial Institutions
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In the automotive industry, a notable trend has emerged: higher auto loan delinquency rates among Generation Z (Gen Z) and Millennial car buyers compared to older cohorts. This shift is influenced by several factors, including credit quality, debt burden, economic conditions, financial habits, and lending trends.
According to recent data, the share of new-vehicle registrations by adults aged 18 to 34 decreased from 12% in Q1 of 2021 to 9.9% in the first two quarters of 2025. One of the reasons for this decline could be the increased delinquency rates among Gen Z and Millennial car buyers.
Subprime lending and weaker credit profiles are contributing factors to the higher delinquency rates. As of Q1 2024, total auto loan delinquencies reached 7.9%, with subprime buckets spiking significantly compared to prime borrowers. This suggests that younger buyers are more likely to have riskier loan terms.
Gen Z and Millennials also carry a considerable non-mortgage debt burden, including auto loans, credit cards, and student loans (notably for Gen Z). The strain of multiple debts can increase delinquency risk. Economic challenges, such as factory closures and energy-sector layoffs in certain regions, also concentrate risk geographically. While Gen Z has shown somewhat higher wage growth, many still face economic uncertainties that can affect loan repayment.
Financial habits and preferences also play a role. Gen Z tends to be more cautious about debt and more financially literate but faces competing priorities such as student loans and housing costs. Millennials often prioritize flexibility over stability, which might affect financial decision-making and repayment discipline differently.
Credit card delinquencies among Gen Z have nearly doubled since the pandemic, indicating growing financial stress overall. Additionally, auto lending to younger buyers is growing in volume, which, combined with the economic environment, puts upward pressure on default rates.
Despite these challenges, Gen Z and Millennials still have access to credit. Jason Jordhamo, marketing director at Polk Automotive Solutions, attributes the drop in younger buyer registrations to affordability, including available inventory within an appropriate price range.
Interestingly, Millennials accounted for the highest new auto loan account balance overall in the fourth quarter of 2024, averaging $30,800 for new vehicle loans. However, Millennial loan balances grew by only 1.7% in the first quarter of 2025, slower than in the same quarter in 2024.
Delinquency rates have generally risen since before the Pandemic, with the average for the entire population being 1.56% in Q1 of 2025, up from around 1.4% before the Pandemic. Gen Z and Millennials, specifically, had 60+ days past due delinquency rates of 1.93% and 1.98%, respectively, in Q1 of 2025.
Despite the higher delinquency rates, lenders are willing to provide loans exceeding $30,000 to Millennial buyers. This rise in average transaction price contributes to rising delinquency rates among Gen Z and Millennials. During the same period, the proportion of those aged 55 and over increased from 44.8% of new registrations to 48.6%.
In conclusion, the combination of riskier credit profiles, high and varied debt burdens, and economic uncertainties contribute to increased auto loan delinquency rates among Gen Z and Millennial car buyers relative to older cohorts. As these younger generations continue to navigate their financial landscape, it will be interesting to see how their auto loan habits evolve.
- In the realm of personal-finance, it's worth acknowledging the growing interest among Gen Z and Millennial investors in alternative investment avenues, such as real-estate, due to their concerns about auto loan delinquency and debt burden.
- To improve their overall financial situation, some financially savvy Gen Z and Millennials are deciding to divert a portion of their income towards smart investments in real-estate, aiming to secure a more stable financial future and potentially reduce their dependency on auto loans.
