by Car Purchases and Payment Problems
Buying a new car can be exciting, however, resolving financial matters often becomes a serious problem. For a growing number of Americans, this issue is taking on a critical nature. Recent data indicates that the share of subprime borrowers who were at least 60 days late on their car payment reached a record level in October.
Record Figures Since the 1990s
This is not just a post-pandemic or post-2008 financial crisis peak, but the worst figure since Fitch Ratings began tracking this data in the early 1990s. The share of 60-day delinquencies reached 6.65% in October, up from 6.50% the previous month and 6.23% in October 2024.
Subprime Borrowers Under Pressure
This specifically concerns subprime borrowers — drivers with imperfect credit histories who are forced to agree to higher interest rates to obtain a car loan, despite the fact that their usually lower income makes them the least protected part of society, unable to afford additional expenses.
Stability of Prime Borrowers
The default rate among prime borrowers — those with good credit histories — remains stable at 0.37%.
Reuters reports that this highlights the difference between the two groups of borrowers.
Impact on Lenders and the Economy
The high level of defaults among subprime borrowers, linked to high car payments and overall financial pressure, has led not only to the loss of vehicles but also to lender bankruptcies. Two American subprime lenders, Tricolor and PrimaLend, filed for bankruptcy in September and October, respectively.
Economic Concerns
The loss of these lenders makes it more difficult for subprime borrowers to access credit, but more worrying is that the situation with auto loans may indicate the state of the entire US economy. No one wants to miss a car payment and risk losing their vehicle, but if a family doesn’t have enough money for all bills, the car loan is often the first to suffer in order to leave money for food and rent.
Total Debt and Different Views
In September, it was reported that Americans owed a staggering $1.66 trillion in auto loans. The Consumer Federation of America believes that problems in the auto lending sector point to more serious issues in the economy that have not yet become apparent. However, not everyone agrees with such conclusions. For example, analysts at Cox Automotive state that they do not see signs of a domino effect that could shake the car market or the economy.
This situation points to deeper structural problems related to credit accessibility and the purchasing power of the population. The rising cost of living and decreasing real incomes create additional pressure on the most vulnerable segments of society, which could have long-term consequences for the country’s financial stability. It is important to consider that similar trends often precede larger economic changes, therefore monitoring these indicators remains key for forecasting future developments.
