Americans Defaulting on Car Loans at Record Rates

Americans are increasingly struggling to keep up with their car payments, a trend highlighting financial pressure among lower-income buyers, even as the broader economy appears resilient. Since the pandemic, car prices have climbed and automaker incentives have shrunk, pushing more consumers to buy used vehicles and sign up for longer-term loans, reports the Wall Street Journal. That shift has left some borrowers—especially those with lower credit scores—behind on payments as wages stagnate and unemployment nudges upward.

Recent data offer a snapshot: In September, nearly 14% of new-car buyers had subprime credit scores (below 650), the highest share since 2016, according to JD Power. Delinquencies are on the rise as well. More than 6% of subprime auto loans are now 60 days or more overdue, a record high, while prime borrowers' delinquency rates have held steadier. Those in the South "are the biggest offenders" when it comes to delinquencies, per LendingTree. Repossessions jumped to 1.73 million vehicles last year, the most since the aftermath of the 2008 financial crisis, per the Journal.

"When you see as many defaults as we see now, it is a signal that ... people's financial situations are much worse than what we realize," James Lambridis, CEO of DebtMD, tells Scripps News. Analysts say these missed payments often come from borrowers who stretched their budgets to manage both higher car prices and elevated interest rates, per the Journal. The recent bankruptcy of subprime lender Tricolor Holdings—targeting consumers with limited or no credit history—underscores the stress on vulnerable groups.

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Despite these issues, subprime loans remain a smaller slice of overall auto lending portfolios, and banks and carmakers have tightened underwriting standards. Investors continue to buy bonds backed by these loans, betting that stricter lending will limit broader risk. Meanwhile, the industry faces another dilemma: Automakers favor high-margin trucks and SUVs, but many buyers increasingly can only afford used cars.