The percentage of auto loan borrowers who are sixty days or more behind on their car payments has reached levels that economists and financial analysts are describing as a significant warning signal about the health of the consumer economy and the sustainability of the automotive lending market. The elevated delinquency rates are concentrated in subprime borrower segments but have been spreading into near-prime categories as the cumulative effect of high vehicle prices, elevated interest rates, and general household budget pressure erodes the financial cushion that kept more borrowers current during earlier periods of economic stress.
The auto lending industry has been monitoring these trends carefully and adjusting underwriting standards in response, but the large volume of loans originated during the period of peak prices and high rates creates a structural challenge that cannot be resolved simply by tightening future lending standards. The vehicles that serve as collateral for these loans are worth less today than they were when the loans were originated in many cases, creating negative equity situations that make it difficult for struggling borrowers to sell or trade their way out of unmanageable payment obligations. Financial advisors are encouraging anyone with auto loans they are finding difficult to manage to contact their lender proactively to explore modification options before missing payments.