New credit card and auto loan delinquencies have now surpassed pre-Covid levels

Increasing numbers of Americans are encountering difficulties in meeting their credit card and auto loan payments, which serves as another indicator of growing financial strain on consumers.

According to a report by Moody's Investors Service, new delinquencies for credit cards and auto loans have now exceeded the levels seen before the Covid-19 pandemic.

In the second quarter, the rate of new credit card delinquencies reached 7.2%, up from 6.5% in the first quarter. This rate, which measures loans that are 30 or more days overdue, is now higher than the second quarter of 2019, which was prior to the pandemic's economic impact.

Similarly, new auto loan delinquencies also increased, reaching 7.3% in the second quarter, compared to 6.9% in the first quarter. Both of these rates are surpassing pre-Covid levels.

However, it's important to note that auto loan and credit card delinquencies are still significantly below the levels experienced during the Great Recession.

The report suggests that more consumers are grappling with the challenges posed by elevated prices, and they are utilizing savings accumulated over the past few years.

Moody's projects that both new credit card and auto loan delinquencies will continue to rise significantly, peaking around 9% to 10% in 2024. This is compared to the 7% rate observed before the pandemic. This projection is contingent on an assumption that the historically low unemployment rate will peak at approximately 5%, leading to a "mild" recession.

The report does provide some positive news – fewer Americans are falling behind on their mortgage payments. While new residential mortgage delinquencies have slightly increased in the past year, they remain below pre-Covid levels. Moody's predicts that mortgage delinquencies won't return to pre-pandemic levels until 2024.