Car Loan Delinquencies Surge to Levels Not Seen Since the 1990s
A growing number of Americans are struggling to afford car payments, with delinquencies reaching levels not seen in decades, raising concerns about the financial health of consumers.
The average financing for a new vehicle reached $42,647 in the third quarter, up from $40,713 the previous year, according to industry data. Simultaneously, the percentage of subprime borrowers – those with credit scores below 670 – at least 60 days late on their car loans hit its highest point since the 1990s earlier this year, as reported by Fitch Ratings. These trends are particularly alarming for lower-income buyers, and come as millions of Americans saw their credit scores downgraded due to student loan repayment resuming last year. The increasing difficulty in affording transportation can significantly impact a family’s ability to maintain employment and access essential services.
Industry experts predict more borrowers will default and lose their vehicles this year than at any point since 2009, according to CU Repossession. “The consumer might be focused on their monthly payment and not realize the term is getting longer and longer,” said consumer finance attorney John Van Alst, director of the Working Cars for Working Families project at the National Consumer Law Center. He added that defaulting on a car loan leads to repossession “pretty much immediately,” unlike other forms of debt that can be restructured. High interest rates are exacerbating the problem, with nearly 72% of new vehicle loans carrying an APR of 5% or higher, as found in a recent report by Edmunds.
Financial educators note that rising costs across the board – from groceries to housing – are contributing to the strain on borrowers’ finances. Money Management International has seen a 24% increase in people seeking credit counseling after experiencing income reduction or job loss. “Most Americans are paycheck to paycheck,” said Thomas Nitzsche, a financial educator at Money Management International. “So when we have things like a government shutdown and people furloughed, it doesn’t take long for people to really feel the pinch.” For more information on managing debt, resources are available at the Federal Trade Commission.
Officials say they are monitoring the situation closely, and emphasize the importance of consumers understanding the terms of their auto loans before signing a contract.
