Rising Auto Loan Delinquencies Point to Emerging Stress in U.S. Consumer Credit

Auto Loan Delinquencies Climb Amidst Affordability Challenges

Recent data from the U.S. auto finance sector indicates growing stress among consumers, particularly in the subprime segment, raising early red flags for broader consumer credit health. Delinquency rates on subprime auto loans have reached unprecedented levels, signaling increased financial strain for lower-income American households grappling with elevated vehicle prices and rising borrowing costs.

Detailing the Deterioration in Auto Finance

Key metrics reveal a significant deterioration in repayment capacity for many auto borrowers. More than 6% of subprime auto loans are now at least 60 days past due, according to Fitch Ratings, marking the highest rate ever recorded since tracking began in 1994. This figure surpasses the overall 60+ day delinquency rate of 1.38% in Q1 2025, which itself exceeded the 1.33% peak observed in 2009 during the Great Recession. Even prime borrower delinquencies have shown an uptick, rising from 0.35% in January 2024 to 0.39% in January 2025.

The affordability crisis in the U.S. auto market is evident in several indicators. J.D. Power reported that nearly 14% of new-car buyers in September had credit scores below 650, representing the highest share since 2016. The average monthly car payment now exceeds $750, with almost one in five loans and leases topping $1,000. To manage these costs, many buyers are resorting to longer loan terms or opting for used vehicles, while repossessions have intensified. Cox Automotive estimates that 1.73 million vehicles were repossessed in 2024, the highest total since 2009, with auto loan defaults exceeding 2.3 million in the same period, surpassing recession-era peaks.

Analysis of Broader Consumer Credit Implications

The rising stress in auto finance points to a potential deceleration in overall consumer spending, particularly within sectors reliant on discretionary purchases and debt. While aggregate U.S. consumer spending has remained robust, growing considerably faster among high-income households, the struggles of lower-income segments suggest a bifurcated economy. These pressures stem from a confluence of factors including tighter household budgets, slowing wage growth, and the expiration of pandemic-era support programs.

Analysis suggests that loose lending practices between 2020 and 2022 contributed to the current predicament, as borrowers took on longer-term, high-interest loans for overvalued vehicles. Many of these borrowers are now "underwater," with loan balances exceeding the declining value of their cars.

Economic Context and Forward-Looking Outlook

Despite the auto sector