Car Loan Crisis Deepens As Delinquencies Hit Record Highs In US Market

The US car loan market has shifted dramatically from being one of the most secure avenues of consumer credit to one of the most precarious. Recent data reveal a staggering 50 percent increase in delinquencies over the last fifteen years, pushing car loans into the centre of financial risk. Even more unsettling, subprime borrowers—households with lower incomes and weak credit histories—are now delinquent at unprecedented rates. Figures from Fitch Ratings show that in August, 6.43 percent of subprime auto loans were more than sixty days in arrears, nearly matching the record set in January and well above levels seen during the global financial crisis.

Last year saw 1.73 million vehicles repossessed, the highest figure since 2009. With America’s collective car loan debt now at a record $1.66 trillion, risks extend beyond borrowers to the very institutions supporting them. Much of this debt has been bundled into asset-backed securities and sold on to financial firms, raising the spectre of broader systemic troubles. The collapse of notable subprime lenders such as Tricolor and First Brands has already rocked Wall Street and drawn warnings from major banks about the stability of the private credit market.

As borrowing costs soar, the squeeze is felt across income levels. The average price of a new car in America has surged by 35 percent since 2019, surpassing $50,000, and the average monthly payment for a new vehicle stands at $761. Used cars demand $570 monthly. Consumers are, in effect, buying the same car but paying markedly higher instalments. Credit counsellors report a sharp rise in calls for help, with American households increasingly turning to credit cards simply to cover basic expenses. Notably, the average debt load for counselling clients has climbed by nearly 60 percent in five years, while typical incomes have risen sharply, reflecting growing financial stress among even middle-class workers with university degrees.

Rising credit card and student loan delinquencies add to a tale of two consumers—prime borrowers remain relatively stable while subprime borrowers strain under the weight. Unlike property, new cars depreciate rapidly, leaving nearly 30 percent of trade-in vehicles in negative equity. Borrowers are compelled to roll thousands of pounds of outstanding debt into their next car loan, compounding their problems.

Recent shifts in immigration policy are intensifying the crisis. With President Trump’s renewed push for mass deportations of undocumented immigrants, many subprime lenders, who have traditionally loaned to those without social security numbers, now face elevated default risks. Several major ratings agencies have put auto asset-backed securities backed by such loans on negative watch, fearing that forced emigration could make default and repossession recovery increasingly difficult.

Although experts agree that subprime auto lending is a much smaller threat to the financial system than the subprime mortgage market which triggered the 2008 crisis, the current wave of defaults is a warning sign of deepening strain on US consumers. Many are asking what the fallout will be if unemployment rises and a larger segment of the population faces financial jeopardy. The fundamental question now is just how resilient the American consumer—and the lenders who rely on them—will prove in the months ahead.