The median auto loan repayment has risen 30% since 2019, according to the Bank of America Institute. Bank of America Institute senior economist David Tinsley joins Asking for a Trend to discuss how lower-income households are handling rising auto loan payments.

Lower-income households in particular saw a large increase in their monthly payments. However, Tinsley explains that the lower-end consumer remains "stable." He notes that lower-income wage growth is up about 4% year-over-year, allowing consumers to continue spending.

He attributes the rise in auto loan payments to two factors. First, are new and used car prices increased significantly during the pandemic, and are up about 25% since 2019. Secondly, the Federal Reserve's rate hikes manifested in financing rates. "Those two things together mean that if you did buy a new car or a used car and financed it over the last few years, you really have seen quite a hike in your regular auto payments," he explains.

Tinsley highlights that among lower-income households, more than 60% are paying at least $500 a month toward their auto loan. If the economy were to take a turn for the worse, he notes that these household budgets could become significantly stressed, and they may need to aggressively pull back on other areas of spending to afford their loan payments.

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This post was written by Melanie Riehl