Odd Lots

Why Americans Are Falling Behind on Auto Loans At Their Highest Level Ever

December 22, 2025

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  • Credit scores are relative measures of risk, meaning a score of 720 today reflects a different risk profile than a 720 score from three years ago due to changing economic conditions outside the individual's control. 
  • VantageScore differentiates itself from FICO by continuously rewriting its scoring algorithms, incorporating trended data, and including non-traditional data like utility and rent payments to score an additional 33 million people. 
  • Auto loan delinquencies have transitioned from being the least risky loan product in 2010 to the riskiest in early 2024, driven by increased vehicle costs, higher interest rates, and rising insurance expenses, which are now exerting significant pressure on consumers. 
  • The current consumer stress, exemplified by rising auto loan delinquencies discussed in "Why Americans Are Falling Behind on Auto Loans At Their Highest Level Ever," is characterized by a steady accumulation of pressure rather than an obvious, imminent catalyst for a broad credit collapse. 
  • Multiple upward stresses, including high total loan prices for cars and the resumption of student loan payments, are contributing to consumer fragility. 
  • Consumer health is currently reliant on accumulated wealth, specifically stock market gains and home equity, suggesting a precarious alignment of pressures that could worsen if these cushions diminish. 

Segments

VantageScore’s Mission and Structure
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(00:06:10)
  • Key Takeaway: VantageScore was created by the three major credit bureaus to foster competition and innovation in credit scoring.
  • Summary: VantageScore was founded by TransUnion, Equifax, and Experian to drive competition and create more predictive credit scores. Its primary use case is lending, but scores are also used for renting and utilities. The company aims to expand access to credit for worthy individuals missed by older scoring models.
Credit Scoring Mechanics and FICO History
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(00:08:18)
  • Key Takeaway: Credit scores translate performance data into a probability of default over the next 24 months, stemming from the Fair Credit Reporting Act’s need for quantitative fairness.
  • Summary: The FICO score originated from Fair Isaac to replace subjective lending judgments, which often involved racial discrimination, following the creation of the Fair Credit Reporting Act. VantageScore was created later due to frustration that the single dominant score didn’t cover 20% of the population. Consumers cannot force a lender to use a specific credit score when underwriting a loan.
VantageScore’s Predictive Model Advantages
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(00:11:13)
  • Key Takeaway: VantageScore’s iterative model updates and use of time-series data allow it to score millions more people than legacy models constrained by fixed history windows.
  • Summary: VantageScore rewrites its entire algorithm (e.g., moving to Version 4, releasing Version 5) to incorporate current data and behavior, unlike competitors who maintain older, restrictive models. The use of trended, time-series data allows scoring individuals with recent credit gaps (like military deployment), overcoming constraints that exclude people new to credit or those with short histories. The model also segments consumers and uses advanced math, including AI clustering, to improve predictive accuracy.
K-Shaped Economy and Wealth Differentiation
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(00:22:40)
  • Key Takeaway: The K-shaped economy is driven more by wealth, particularly homeownership, than by income levels alone in determining consumer financial health.
  • Summary: Higher-income cohorts initially showed the highest year-over-year increases in delinquency rates, suggesting income alone wasn’t the differentiator. Homeownership proved to be the biggest factor separating those who could weather inflation from those who could not, as it provides a significant financial cushion. The recent decline in delinquencies among higher-income households is a positive sign for overall spending, which drives the economy.
Mortgage Score Rule Changes
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(00:25:02)
  • Key Takeaway: The FHFA removed the minimum FICO score requirement and allowed VantageScore 4 to be used in mortgage applications, potentially increasing homeownership access in rural areas.
  • Summary: The removal of the minimum FICO score cutoff for conforming loans opens up access to homeownership for more borrowers. Allowing VantageScore 4 as a choice provides a more modern, predictive model than the old standard, which performed poorly during the 2008 crisis. States like West Virginia are expected to see the largest difference in scorable individuals, potentially boosting local economies.
Auto Loan Performance Shift
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(00:40:33)
  • Key Takeaway: Auto loans have shifted from being the least risky credit product to the riskiest, primarily due to the average loan value increasing more than mortgages over the last 15 years.
  • Summary: Auto loan delinquencies continued to rise even after lenders tightened subprime criteria, indicating broader stress affecting near-prime and prime borrowers. The average auto loan value has increased substantially, compounded by high interest rates and unexpected increases in insurance and repair costs. Unlike mortgages, defaulting on an auto loan quickly results in repossession, suggesting these defaults correlate strongly with households struggling to meet basic needs.
Student Loan Resumption Impact
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(00:49:05)
  • Key Takeaway: The resumption of student loan payments caused delinquencies to double the historical norm, indicating significant financial shock after years of forbearance.
  • Summary: Before COVID, student loan delinquency hovered around 10%; upon resumption, rates exceeded 20% because many borrowers had never made a payment. While rates have since improved to around 17.5%, the full effect may not be realized as some forbearance programs expire next year. The high delinquency rate signals that many households are struggling to absorb this mandatory monthly outflow.
Building Pressure, No Catalyst
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(00:56:33)
  • Key Takeaway: Consumer stress is characterized by steadily building pressure rather than an obvious, singular catalyst for collapse.
  • Summary: There is no obvious catalyst signaling an imminent consumer credit collapse. Instead, the situation reflects steadily building pressure across multiple fronts. This accumulated stress means that a small spark could trigger significant issues.
Sources of Consumer Stress
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(00:56:55)
  • Key Takeaway: Multiple factors, including high car loan prices and student loan resumption, contribute to upward price stresses on consumers.
  • Summary: The resumption of student loans after a five-year pause is one contributing factor to current financial strain. The total loan price of vehicles has become excessively high relative to consumer incomes. These various upward stresses on prices are converging.
Fragility and Wealth Reliance
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(00:57:08)
  • Key Takeaway: Consumer fragility is increasing due to reliance on accumulated wealth cushions like stock market gains and home equity.
  • Summary: Consumers are heavily reliant on accumulated wealth, particularly gains in the stock market and home equity. The current alignment of these pressures indicates that the consumer base is significantly more fragile than in previous years. This situation suggests potential vulnerability if these wealth cushions are eroded.
Podcast Sign-Off
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(00:57:30)
  • Key Takeaway: The hosts conclude the episode of Odd Lots and provide follow/contact information.
  • Summary: Tracy Alloway and Jill Weisenthal sign off from the “Odd Lots” podcast. Listeners are directed to follow them on social media and visit bloomberg.com/slash odd lots for content. A request is made for listeners to leave positive reviews on podcast platforms.