Things are looking, uh, bad. A record number of Americans are falling behind on their painfully high auto loan payments, and it’s a strong sign that lower-income buyers are struggling mightily to afford the vehicles they’ve purchased as wages stagnate and unemployment continues to tick in the wrong direction. Of course, a lot of this has to do with the surge in car prices — both new and used — since the pandemic.
Another driving factor behind this uptick in late loan payments is the fact that the percentage of new-car buyers with credit scores below 650 was nearly 14% in September, according to a Wall Street Journal report. That’s the highest it’s been for any month since 2016. The portion of subprime auto loans that are at least 60 days overdue hit a record of more than 6% this year, Fitch Ratings says. At the same time, delinquency rates for other borrowers have remained relatively steady.
In 2024, an estimated 1.73 million vehicles were repossessed, according to data from Cox Automotive reported by WSJ. For those keeping score at home, that’s the highest total since 2009, and 2009 was a very bad year for the global economy. I’m sure you remember it.
A bigger pool
I know there will be some people here who feel that folks who aren’t as well off as they are — folks who maybe do not have credit scores as high as theirs — don’t deserve grace or a new car. The truth is, some folks like the peace of mind a new car brings with it, and they shouldn’t be put out of house and home to be able to afford one. Unfortunately, they are.
Sure, subprime loans generally make up just a small part of car loan portfolios at banks, but the finance arms of car companies loosened up credit regimented over the summer. It shows they are willing to take on additional risk if it means moving more cars off the lot.
Because of that, it might mean some buyers are ending up in cars they really have no business being able to afford. The average monthly payment is now over $750, and nearly 20% of all loans and leases exceed $1,000 per month, according to the Wall Street Journal. If you’re someone who isn’t completely financially literate, but a dealer tells you that is something you’d be able to afford, you’re likely to trust them. They’re an “expert,” after all.
Ford last month said it would target low-credit buyers with lower interest rates to unload unsold F-150 pickups, its top-selling model. A Ford spokesman said that only 3% to 4% of the company’s portfolio of loans are backed by what it defines as higher-risk customers.
At General Motors’ credit arm, about 12% of its loans so far this year went to customers with FICO scores below 620.
I’m not sure if we’re in an auto financing bubble, as I, too, am not any sort of financial wizard. All I will say is that I wouldn’t be terribly surprised if it starts looking eerily like 2009 all over again. If you’re going to buy a new car soon, be careful.
