Subprime Car Buyers Pressured by High Prices and Stagnant Wages

Subprime borrowers are reportedly having a harder time keeping up with their car payments.

A record-high share, more than 6%, of these consumers are 60 days or more overdue on their payments, while the share of other borrowers who are delinquent has remained steady, The Wall Street Journal reported Friday (Oct. 10), citing data from Fitch Ratings.

The report also said J.D. Power found that the share of new-car buyers who have credit scores below 650, 14%, is the highest for the comparable period since 2016, and Cox Automotive found that the number of vehicles that were repossessed last year, 1.73 million, was the highest since 2009.

Factors contributing to these trends include new-car prices that have been high since the pandemic, interest rates that have helped drive up monthly payments, wages that have been stagnant and unemployment that has been rising, according to the report.

Fitch Ratings said in a Sept. 19 special report that it expects the performance of U.S. auto loan asset-backed securities to deteriorate this year “due to higher debt servicing costs and weaker economic growth. Despite improvements in delinquencies and losses, subprime auto loan ABS remains under significant stress, with delinquencies reaching record highs.”

It was reported in March that the increase in the number of auto repossessions was due in part to steep interest rates and higher car prices. The number had plunged during the pandemic due to relief efforts for borrowers, but there was an uptick in repossessions when those measures ended and inflation jumped.

The number of cars repossessed in 2024 was 16% higher than in 2023 and 43% higher than in 2022, according to the Cox Automotive data.

It was reported in August that the increase in the average sale price of new cars has made long-term car loans more common, creating risks for buyers and sellers.

Six-year loans accounted for 36.1% of car loans in the second quarter, while seven-year loans accounted for 21.6% and eight-year loans accounted for less than 1% but were growing.

Long-term car loans create risks for buyers in the form of slow equity building, the potential for owing more on the car than it’s worth when they want to trade it in, and paying more interest than they would pay on a shorter-term loan.

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