Americans are falling behind on their auto loans at the highest rate in nearly three decades. With interest rate hikes making newer loans more expensive, millions of car owners are struggling to afford their payments. It’s a clear indication of distress at a time when the economy is sending mixed signals, particularly about the health of consumer spending.
The percent of subprime auto borrowers at least 60 days past due on their loans rose to 6.11% in September, the highest in data going back to 1994, according to Fitch Ratings.
In April that figure slipped from a previous high of 5.93% in January. But after burning through tax returns, contending with a shakier job market and grappling with still-elevated inflation, more car owners have become delinquent. Behind the surge is both higher car prices and borrowing costs. And with the Federal Reserve indicating it plans to keep rates higher for longer, the problem is likely to persist, especially as millions of Americans recently started paying their federal student loans again. “The subprime borrower is getting squeezed,” said Margaret Rowe, senior director with the asset-backed securities group at Fitch. “They can often be a first line of where we start to see the negative effects of macroeconomic headwinds.” Having access to a car is a necessity for millions living in areas without reliable transportation. Yet, prices for both used and new vehicles are historically high, declining only slightly from peaks during the pandemic, which has priced out many low-income workers who often need a car to get to work. For those with the best credit scores, interest rates are about 5.07% for a new car and 7.09% for a used vehicle on average, according to Bankrate. And for those with the worst credit, rates are about 14.18% and 21.38% for new and used cars, respectively. As payment delinquencies rise, repossessions are expected to increase accordingly. Cox Automotive estimates that 1.5 million vehicles will be seized this year, up from 1.2 million last year, although that’s still below pre-pandemic levels. NN: buying a plastic and chrome pick up truck for 50K financing it at 14% for 7 years… how do you think that will end up.