Auto Loan Delinquencies Reach Highest Level in Over 30 Years
Americans are falling behind on car payments at a rate not seen in over three decades. As of January 2025, 6.4% of subprime borrowers were at least two months late on their auto loans—the highest rate Fitch Ratings has recorded since 1994.
Rising car prices and elevated interest rates have significantly strained consumers' budgets. Since the start of the pandemic, average vehicle prices jumped from about $38,000 to over $48,500 by January 2025. Interest rates have further escalated costs, making monthly payments even more challenging for many Americans. For instance, the average monthly payment for a new vehicle loan reached around $755, significantly higher compared to pre-pandemic levels. This increase means that households with limited financial flexibility are feeling particularly squeezed.
These financial pressures are not limited to subprime borrowers. Even borrowers with better credit scores have experienced a noticeable uptick in payment delinquencies. Prime borrowers who are over 60 days late increased slightly from 0.35% last year to 0.39% this January. Although the rate is much lower than subprime borrowers, the upward trend is concerning for lenders and financial institutions.
Additional pressure comes from broader economic factors, including trade tariffs and inflation. Recent tariffs introduced could push car prices up another $12,000, though some temporary exemptions were granted for Canada and Mexico. Economists predict these tariffs could negatively affect consumer demand for new vehicles and place even greater financial strain on already struggling households. Coupled with the persistent effects of inflation, households are facing difficulties managing other financial obligations, such as housing costs, groceries, and healthcare.
Economic uncertainty is further exacerbating the situation. Consumer confidence has declined, partly due to volatile market conditions and the economic impact of global trade disputes. This weakened confidence has caused consumers to become more cautious about major purchases like cars, potentially leading to a further slowdown in auto sales. As delinquencies increase, lenders face higher repossession rates and financial risks, creating challenges for the auto lending industry as a whole.
To mitigate these challenges, some borrowers have resorted to using tax refunds and other short-term financial gains to catch up on overdue payments. Historically, such strategies have temporarily alleviated delinquency rates during certain periods of the year. However, the broader structural issues of rising prices, high interest rates, and uncertain economic conditions remain significant concerns moving forward.
