Comparison of car loans by generation
Salesman giving key to customers in modern car dealership
Auto loan data reveals some interesting insights into how consumers of different ages tend to finance their vehicles. Experian analyzed its consumer debt data to see how the number of car loans, average loan costs and missed payments vary across generations.
A notable trend is that US consumers born between 1965 and 1980 are more likely to have multiple car loans. These Generation X vehicle owners also spend the most on average on monthly car bills compared to other age groups. And whether it’s a pickup truck or a luxury convertible, data suggests that the older the vehicle owner, the less likely they are to make payments.
This pattern may also correspond to what is known about the differences in wealth constructed by different generations. At the start of 2022, millennials still lag behind the levels of wealth accumulated by Gen Xers and baby boomers when they were at the same points in their lives, according to Data of the Federal Reserve Bank of St. Louis.
Gen Z and millennials, more likely than older generations to have only one car loan, saw their average monthly payments increase the most of any generation year-over-year in 2022. Gen Z are between the ages of 9 and 25, and it’s too early to tell what the financial habits of the adult consumers in the group, aged 18 to 25, will look like. According to Experian’s most recent data on car loans, young Americans are more likely to borrow money for the purchase of their car than any other generation. They are also more likely to have trouble making car payments.
Of course, car owners of all ages have seen the cost of new vehicles to skyrocket since spring 2021, triggered by an increase in demand amid computer chip shortages and other supply chain constraints. But even before the pandemic, sticker prices had been steadily rising. At the end of the first quarter of 2013, the average cost of a new car was $31,526; in the first quarter of 2022, it had climbed to $45,927, according to Kelley Blue Book.
As prices have risen, loan terms have become longer than ever, which has also played a role in changing car loan habits. Read on to see how these trends have shaped the financial landscape of American car owners across generations.
Older generations take out fewer car loans
Bar chart showing the number of auto loans by consumer and by generation.
Members of the silent generation, born between 1928 and 1945, are the least likely to have a car loan. About half of all baby boomers, a generation now in their 60s and 60s, are paying off at least one car loan. This could indicate that older consumers are more likely to have paid off their car loans and to own their vehicle.
Older generations have generally had more time to build up their wealth and repay their debts. So it’s no surprise that 4 in 5 Gen Zers over the age of 18 have at least one car lease or loan. As of 2022, the oldest members of Generation Z reach the age of 25 and are just beginning to gain a foothold in the workforce. But estimates of Gen Z’s spending power have jumped in recent years. This growing and diverse cohort of consumers saw their gross income jump nearly 40%, from $27,779 in 2019 at $38,635 in 2020— according to the Bureau of Labor Statistics.
Generation X pays the most for monthly automatic payments
Bar chart showing the average monthly automatic payment per generation.
While millennials and Gen Z are relatively more likely to have a car loan, it’s Gen X who pays the biggest bills each month. Gen Xers are considered to be in their peak spending years and earned more income than any other generation in 2020, according to BLS Data. These Americans may be financing more expensive vehicles than younger generations of consumers.
At the start of 2022, Gen X vehicle owners were paying an average of $637 per month for their auto loans. That compares to $547 for Millennials and $429 for Gen Z on average each month.
As for the biggest increase in their bills, Gen Z’s car loan repayments jumped 9.2% year-over-year between 2021 and 2022, a much larger increase than other generations. . Millennials followed with a 7.5% jump from their 2021 average.
Gen Z has the highest share of late automatic payments
Bar chart showing the percentage of each generation that is more than 30 days past due on automatic payments.
Gen Z is having the hardest time of all generational cohorts keeping up with car loan repayments. However, U.S. consumers of all generations found it harder to make on-time payments on their auto loans in early 2022 compared to last year. Year-over-year increases in late payment rates were most dramatic for millennials and Gen Z auto owners; their incidence of people currently in arrears increased by 13.4% and 12%, respectively.
An auto loan is considered past due when a monthly payment is missed by 30 days or more. Lenders may not consider a loan in default until three consecutive payments are missed, or if the payment is generally more than 90 days past due. Recovery can take place after this time. However, the time for default and repossession may vary depending on the lender.
This story originally appeared on Experian and was produced and
distributed in partnership with Stacker Studio.