Squeezed Consumers Are Missing Credit Card, Auto Loan Payments

Analysts say problem is going to get worse in the months ahead
By Rob Quinn,  Newser Staff
Posted Aug 31, 2023 6:40 PM CDT
Squeezed Consumers Are Missing Credit Card, Auto Loan Payments
"People don’t like going into default or delinquency with credit cards," says Neil Saunders at analytics company GlobalData. "It makes a lot of people feel very nervous and unhappy."   (Getty Images/allanswart)

Americans squeezed by high prices and high interest rates are failing to make payments on credit cards and auto loans—and analysts expect loan delinquencies to keep rising before the situation improves for consumers, especially those on lower incomes. "The increase in delinquencies and defaults is symptomatic of the tough decisions that these households are having to make right now—whether to pay their credit card bills, their rent, or buy groceries," Mark Zandi, chief economist at Moody's Analytics, tells the Washington Post.

According to the New York Fed, the rate of new credit card delinquencies hit 7.2% in the second quarter of this year and new auto loan delinquencies hit 7.3%, with both figures above pre-pandemic levels, Yahoo Finance reports. The NY Fed says credit card balances in the US have risen about $1 trillion for the first time. Analysts say auto loan delinquencies are now their highest since the financial crisis of 2007-2008 and the rate is expected to keep climbing until next year. Loan rejection rates have soared and many lenders have either scaled back auto loans or stopped making them altogether, per USA Today.

In another sign of how squeezed consumers have become, more shoppers are using "buy now, pay later" services even for essentials like groceries, the Post reports. Analysts say that while the economy remains in good shape, things are likely to get even worse for many consumers in the months to come, with student loan payments set to resume in October, higher electricity and heating bills in the winter, and the cost of the holidays. One potential upside, economists say, is that the Fed might view the struggle to repay credit card and auto debt as a sign that the economy has slowed down enough for it to stop raising interest rates in an effort to tame inflation. (Macy's says credit card delinquencies have "accelerated" in recent months and it expects holiday spending to be weak.)

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