Opinion: Auto Loans Are Cracking Budgets, and Credit Cards Must Stay Disciplined in 2026

Some of the better news to come out of 2025 was the decline in credit card delinquencies, which dropped from 3.19% in Q3 2024 to 2.98% for the same quarter in 2025 . As more consumers regularly met their due dates, credit card issuers benefited from the consistency, which lowered risk, reduced losses, and set the stage for positive earnings. 

On the other hand, people who purchased and financed cars were a pain point for lenders. In the third quarter of the year, the Federal Reserve reported that auto loan delinquency rates rose to 3.88%. 

The disparity between credit cards and car loans doesn’t mean that borrowers were more irresponsible with auto financing than they were with credit cards, but that they struggled with high payments.

American consumers have an affinity for using credit cards but not the debt that often comes with it. Although some cardholders accept that revolving balances are occasionally necessary or even desirable, few embrace overwhelming arrearage.

Large payments that eat into their living expenses and expensive interest charges are especially painful for people who are struggling with inflation and job insecurity — both of which were major concerns in 2024. 

That’s why more cardholders paying their credit card bills on time is a terrific trend for lenders. It appears that cardholders are prioritizing these payments despite outside pressures. 

Now credit card issuers can capitalize on the improved stability. It gives some room to offer more enticing perks and extend higher credit lines. With the Fed’s latest interest rate cut of 25 basis points, they can lower associated APRs. If all goes well, credit cards can be extra appealing to consumers this year. 

Meanwhile, automobile prices have been steadily rising, which has made financing more costly for buyers. Since 2020, the average monthly car payment has increased by nearly 40%, now reaching a whopping $660. That’s a big bill on its own, and leaves little flexibility for other debt categories. 

To make do, a higher percentage of car buyers turned to loan extremes in 2025, too. Per Edmonds data, 84-month car loans hit an all-time high in Q1 2025. These long-term loans comprised 19.8% of new vehicle financing, up from 15.8% for the same quarter the previous year. 

Such car financing puts considerable pressure on consumer budgets, so delinquencies aren’t surprising. And as tariffs elevate automakers’ costs, car prices don’t appear to be lowering in the immediate future. 

To qualify for preferential interest rates that will keep car loan payments as low as possible, consumers will have to be especially careful to build and maintain their credit profiles. Hopefully the trend of paying credit card bills on time will hold steady. 

Yet while a good portion of cardholders managed to meet their payments, revolving balances are still high.

The Federal Bank of New York found that credit card debt hit a record $1.23 trillion in the third quarter of 2025 thanks to inflation and more people relying on credit to cover daily expenses despite high interest rates. Since credit utilization is second only to payment history in FICO Score development, lenders will need to carefully watch debt. 

Consumers will have to be especially careful to build and maintain their credit profiles in 2026.

With the new year underway, lenders can do a few things to keep credit card delinquencies down even as car payments add stress to consumers’ cash flow. 

Here are my suggestions: 

• Credit card issuers should consider implementing voluntary caps on penalty APRs. The harder it is for people to pay down their debt, the less enthusiastic they may be to stay on track. Another option is to offer people with high revolving balances fixed-term payoff plans at significantly reduced rates. 
• For new credit cards, expand zero-percent promotional periods for balance transfers and purchases. Offer plenty of guidance and tools so these cardholders can pay off debt within the time-sensitive terms. Meanwhile, lower or eliminate annual fees, so they’re not an added burden. 
• Slow or pause automatic credit limit increases for consumers who demonstrate strain with their other obligations, such as car financing. Before granting large credit lines and loans, validate income and conduct thorough affordability assessments that include more details about their household spending. 
• For faster and easier debt repayment, encourage automatic payments in fixed sums versus minimum payments. If consumers have rewards cards, stress the option to use statement credits to pay down principal.
• Partner with nonprofit credit-counseling agencies to offer education, support and debt-management options, and suggest to anyone with stubborn debt (even when they’ve been paying on time) to take advantage of the free professional assistance. 

Despite the variety of macro- and microeconomic pressures that are sure to drift into the future, lenders and borrowers can both come out ahead. Here’s to a financially healthy — and robust — 2026.