Subprime car buyers are falling behind on auto loan payments at the fastest pace in roughly 30 years, a trend economists say signals broader strain on lower-income households.
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Delinquencies Reach Multi-Decade Highs
According to Fitch Ratings, 6.43% of borrowers with subprime credit scores are now at least two months behind on their car payments, roughly double the rate seen in 2021 and higher than levels recorded during recent recessions. Repossession activity has also picked up, reaching levels not seen since 2008.
Rising Costs Are Driving the Trend
High vehicle prices, elevated interest rates, and persistent inflation are cited as the main drivers. More than half of new vehicle leases and roughly 75% of auto loans now carry monthly payments of $500 or more, with nearly 20% exceeding $1,000 a month. Even used vehicles have become expensive to finance, with almost half of used-car owners paying $500 or more monthly.
Repair and Insurance Costs Add Pressure
Beyond loan payments, the cost of maintaining a vehicle has also climbed. Repair costs rose 15% this year, the steepest increase since 2021, while auto insurance premiums continue to rise faster than overall inflation.
Subprime Borrowers Bearing the Brunt
Subprime borrowers are especially exposed, with many owing more on their loans than their vehicles are currently worth while also carrying other debt. Cox Automotive data shows September default rates near 10%, a slight improvement from 2022 but still well above historical norms.
A Widening Divide
Borrowers with strong credit have been largely insulated from the trend, with delinquency rates for that group staying under 0.5%. The gap illustrates what economists describe as a “K-shaped” economy, where higher-income households remain financially stable while lower-income borrowers struggle to keep up with the basic cost of vehicle ownership.