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By Suzanne Blake
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The rate of Americans unable to pay their car loans has skyrocketed past even 2008 levels, according to new data from the Fitch Ratings ABS Index and Equifax.
While the 2008 financial crisis saw a high of 5 percent, the 60-day delinquency rate on U.S. subprime auto loans has surged to a record 6.9 percent.
Why It Matters
Delinquency rates on auto loans can be a key indicator into the economy at large, signaling widespread strife or a recession to come.
Read More on Personal Finance
Loan delinquency also impacts Americans’ credit scores in the long run, affecting their ability to buy a home and be approved for future loans.
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What To Know
The new data revealed that serious delinquency rates for auto loans more than doubled since 2021, exceeding the 1996 peak by 0.9 percentage points.
Altogether, total auto debt has gone up $312 billion over the last five years to a record $1.67 trillion.
While much of this is fueled by higher vehicle prices, subprime financing has made up roughly 14 percent, or $234 billion, of all auto loans.
“This isn't ‘people got dumber with money,’” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek.
“It's a delayed bill for a car market that went insane, colliding with a brutally tight household budget. Three years of bad conditions are compounding. Pandemic-era overpricing is now colliding with normal depreciation. People were talked into paying thousands over MSRP under ‘supply chain’ excuses. Now values are normalizing and they're deep underwater on cars that aren't worth the note.”
For many Americans, loan terms are longer and “more toxic,” Ryan said.
“Prime borrowers are mostly fine, with 60-day delinquency around 0.37 percent,” Ryan said. “Subprime borrowers are breaking at levels we haven't seen in decades. Debt quality, not just debt quantity, is the problem. Overall auto balances hit record highs, but the stress is concentrated in borrowers who were stretched thin by dealers and lenders during the pandemic run-up.”
Layoffs are ticking up, vehicle prices have climbed to record levels, and the average new car is hovering around $50,000, said Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast.
“Layer in higher interest rates and suddenly that monthly payment is pushing $1,000 or more,” Thompson told Newsweek. “For some households, that’s a mortgage payment. When debt gets that large relative to income, something eventually gives.”
What People Are Saying
Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek: “Car trouble is an early-warning signal. Economists worry because people normally default on credit cards before car loans. Seeing autos go bad first in some households hints that basic budgets no longer pencil out.”
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “The headlines may say the consumer is ‘resilient,’ but beneath the surface the everyday American feels squeezed. Prices remain elevated, wages haven’t kept pace, and families are making real trade-offs. Do I pay the car note or do I pay rent? Rent usually wins.”
Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek: “It is important to note that these are subprime loans, and subprime loans are always riskier and always have a higher default rate than prime loans. Even if these are subprime loans, it is still an issue. The price of automobiles skyrocketed during the pandemic, and despite a slight cool-down, tariffs have kept prices higher than expected. Americans’ real income, or the nominal number as compared with inflation, has been going down since the 1980’s.”
What Happens Next
In the long term, this could mean widespread economic strife, experts say.
“Long-term implications go deeper than more repos,” Ryan said. “Labor market fragility first. If more low-income and subprime borrowers lose cars, local labor participation and job stability get hit, especially in areas with poor public transit. That feeds back into more delinquencies across other debts.”
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