An alarming number of Gen Z and millennial vehicle buyers are 90 days late on payments. In the first quarter, loan delinquency for buyers ages 18 to 39 was the highest since the 2008 and 2009 Great Recession.

Especially disturbing is that this elevated delinquency arose while the federal government suspended many of these borrowers’ student loan payments during the pandemic. It’s likely that as the government restarts student loan collections this fall, even more Gen Z and millennials will slip into auto loan delinquency.

Young buyers borrowed more than they should have — a costly personal finance lesson with years of negative impact. Just one late payment affects a credit score, and a 30-day delinquency lingers for seven years.

But the blame doesn’t fall on just one side of the deal desk: Automakers, dealers, lenders, salespeople and credit managers all had motivation to write what are turning out to be bad loans, much as home mortgage lenders did in the lead-up to the global financial crisis 15 years ago.
Historically low interest rates masked dramatic inflation on new cars, and longer loan terms left buyers more leveraged.

Prime interest rates haven’t reached today’s levels of 8.25 percent since June 2006, and they haven’t been higher since February 2001, according to JPMorgan Chase. Younger adults — consumers and dealership employees alike — may not have much experience with these kinds of rates, but they should be able to do math.

Auto loan rejections have surged to the highest rate since the New York Fed started keeping records in 2013. That may be prudent, but it does put a hardship on dealers and their sales staff as well as shoppers.

Dealers, salespeople and credit managers must steer customers to vehicles within their budget, such as used cars, even if it means a smaller commission. The aim should be a satisfied customer who will return for many more vehicle purchases.

During the Great Recession, lenders learned borrowers were more willing to go delinquent on their houses than their cars because a house couldn’t get them to work. Rising auto loan delinquency rates now should warn the industry that change is needed — in vehicle mix, in sales approach and in responsible financing.