InflationReal EstateInvestingCompensationCareersStudent Loans and Debt

Gen Z and millennials are having the hardest time paying off their cars, and it speaks to their economic pain

June 7, 2022, 9:00 AM UTC

With record inflation hiking up prices for everything from groceries to rent, and economists and industry leaders speculating about a recession on the horizon—or maybe already here, according to Cardi B—it’s a hard time for young Americans in this economy.

And while general economic pain has put some goals, like buying a house, out of reach for young Americans, now it’s getting harder even to afford a car. 

The Cox Automotive/Moody’s Analytics Vehicle Affordability Index, which measures the ability of a household making the median income to afford an average-priced car, reported in May that it now takes a record 40.6 weeks to buy a car. 

“New-vehicle affordability continues to be much worse now than a year ago when prices were notably lower and incentives were higher,” said the company in an accompanying release. April’s affordability index number represents an 18% increase from last year’s, according to the company. The average car now costs $46,526, per vehicle valuation firm Kelly Blue Book, a subsidiary of Cox.

Young consumers who have managed to purchase cars aren’t having an easy time paying off their loans, according to data from credit reporting agency TransUnion. Gen Z and millennial borrowers are now dealing with higher auto loan delinquency rates than before the pandemic. 

Gen Z borrowers had an overall delinquency rate of 2.21% in the first quarter of 2022, with millennials close behind at 2.14%—up from 1.75% and 1.66% respectively. Those are spikes of 26% and 29%.

An increase in auto loan delinquency could imply greater financial stress for young consumers. “We’ve seen for quite a long time that in terms of payment hierarchy, consumers prioritize their auto loans,” says Charlie Wise, SVP of global research and consulting at TransUnion. If young borrowers aren’t paying their auto loans, it’s likely they’re not paying other loans as well.

“Another piece of it is simply that these younger borrowers often have less resources to fall back on when they get into difficulty,” says Wise.

To be sure, older consumers are far more likely to be further along in their careers and more used to buying and financing cars. In the same quarter, Gen X presented a 1.53% auto loan delinquency rate, with baby boomers landing even lower at 0.93%.

While all generations show a marked increase from pre-pandemic rates, only Gen Z’s and millennials’ rates went up by at least a full percentage point.

Those increased default rates aren’t the result of any deterioration in overall portfolio performance, says Wise, but because people are simply not buying enough cars to keep portfolios fresh.

“Loans are staying on the books longer because consumers just aren’t trading in their existing vehicles for new ones,” he says. “The longer a loan stays on, the more likely it’s going to go delinquent.”

Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.