Americans Defaulting on Car Loans at Record Rates

Americans are facing growing difficulty keeping up with car payments, highlighting the financial strain on lower-income buyers even as the broader economy shows resilience. Since the pandemic, new-vehicle prices have surged and automaker incentives have declined, prompting more consumers to turn to used cars and longer-term loans, according to the Wall Street Journal. For many borrowers—especially those with lower credit scores—stagnant wages and rising unemployment have made keeping up with payments increasingly challenging.

Recent data paints a stark picture: In September, nearly 14% of new-car buyers had subprime credit scores (below 650), the highest proportion since 2016, according to JD Power. Delinquencies are climbing, with over 6% of subprime auto loans now 60 days or more past due—a record high—while rates for prime borrowers have remained relatively steady. LendingTree reports that borrowers in the South have the highest delinquency rates. Repossessions also surged to 1.73 million vehicles last year, the most since the aftermath of the 2008 financial crisis, the Journal notes.

“When you see as many defaults as we do now, it signals that people’s financial situations are far worse than many realize,” said James Lambridis, CEO of DebtMD, to Scripps News. Analysts point out that many missed payments come from borrowers who stretched their budgets to manage both higher car prices and rising interest rates. The recent bankruptcy of subprime lender Tricolor Holdings, which served consumers with limited or no credit history, underscores the pressures on vulnerable groups.

Despite these challenges, subprime loans remain a relatively small portion of overall auto lending, and banks and automakers have tightened their underwriting standards. Investors continue to buy bonds backed by these loans, betting that stricter lending practices will limit broader risk. Meanwhile, automakers face a dilemma: they prefer selling high-margin trucks and SUVs, yet many buyers are increasingly limited to affordable used vehicles.

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