It is not often that Americans fall behind on their car payments. For most people, the car is not a luxury, it is how they get to work, take their kids to school, and handle everyday life. So when more Americans begin missing payments on something that important, it says a lot about how people are really doing financially.
Why more Americans are missing car payments
Recent data from Fitch Ratings shows that more subprime borrowers, that is, people with lower credit scores, are now falling behind on their car loans than at any time since the early 1990s. The percentage of subprime borrowers who are at least 60 days late has doubled since 2021, reaching 6.43%. That is higher than during the pandemic, the Great Recession, or even the dot-com crash.
Cars are also being repossessed at the highest rate since 2008 and 2009. Experts say that is not just another statistic, it is a warning sign about the overall health of the economy. Car payments are usually the last thing people skip, so when they start missing them, it means many households are running out of room to stretch.
Jonathan Smoke, chief economist at Cox Automotive, explained it clearly: “There is no room for error.”
High car prices and expensive loans are making things worse
If you have bought a car recently, you already know how high prices have become. Both new and used car prices have jumped sharply in the past few years, and high interest rates have made financing even more expensive.
According to Experian, more than half of new car loans and three-quarters of new leases now have monthly payments of $500 or more. Around 46% of used car loans also fall into that range. Even more striking, more than 17% of new car loans have monthly payments above $1,000.
That means many Americans are paying more for their cars than ever before, at a time when prices for groceries, rent, and utilities are also high. When everything costs more, something eventually has to give and for many families, that “something” is the car payment.
Recommended:
75,000 New Yorkers just had their medical debt wiped — here’s how it happened
Repair and insurance costs are adding extra pressure
Even those who have managed to keep their cars are not getting much relief. Repair and maintenance costs have jumped sharply as well. The Bureau of Labor Statistics reported that vehicle repair costs increased by 15% in August compared to the year before, the largest rise in almost two years.
Between July and August alone, repair prices climbed 5%, which is the biggest monthly jump on record. Many people are keeping their older cars longer to avoid buying new ones, but that also means more frequent repairs and higher bills.
Car insurance costs are another burden. Even though rate increases have slowed a bit, premiums were still up nearly 5% in August, which is far above the overall inflation rate. For working families already struggling with higher living costs, these increases make it even harder to stay current on auto loans.
How the car loan crisis reflects a deeper problem
What is happening with car loans shows a bigger divide in the economy. Americans with stronger credit, those known as prime borrowers are generally keeping up with their payments. Their delinquency rate remains below 0.5%. But among subprime borrowers, the default rate is close to 10%.
That gap highlights what many call a “K-shaped economy.” On one side, people who own homes and have investments are still doing well and spending freely. On the other side, lower-income Americans are struggling to keep up with basic expenses.
Pamela Foohey, a law professor at the University of Georgia, said many subprime borrowers have no choice but to default. “They can’t sell their cars because they owe so much more than it is worth,” she explained. Many have already missed payments on credit cards, rent, or student loans before they reach that point.
Repossessions are rising again
Lenders that specialize in subprime loans are seeing more of their customers default and lose their vehicles. George Badeen, who runs a repossession company in Detroit, said, “The repo numbers indicate it’s probably close to the Great Recession in volume.”
Many lenders now install GPS tracking systems in vehicles, making it easier to find and repossess them. Some can even remotely disable a car’s ignition when payments are missed. It is a tough reality, especially for people who rely on their car to make a living.
Recommended:
What is adjusted gross income, how to calculate it and why it matters
For some Miami condo owners, selling the building is the smartest move they’ll ever make
“I can’t guarantee your flight won’t be canceled”: air travel could soon get much worse
