More People Are Missing Car Payments in Another Ominous Sign for the Economy

A record number of subprime borrowers are behind on their auto loan payments by 60 days or more, according to figures from Fitch Ratings reported by Bloomberg.

The rate hit 6.11% in September – the highest since records began in 1994, and was up from the 5.93% recorded at the start of the year.

Analysts predict that auto loan delinquencies will continue to rise into 2024 and peak at about 10% before they start to fall, per CNN.

The high rates of delinquencies indicate that many lower-earning workers in particularly are struggling amid ongoing high inflation, a rough jobs market, and the resumption of federal student loan payments following a pandemic-era freeze.

High interest rates are also having an impact, with many turning to borrowing to cope. In the second quarter of this financial year, credit card debt surpassed $1 trillion for the first time in the NY Fed survey's history.

Though delinquency rates do not necessarily mean a recession will happen, they are often reflect a struggling economy.

Margaret Rowe, senior director at Fitch, told Bloomberg: " The subprime borrower is getting squeezed. They can often be a first line of where we start to see the negative effects of macroeconomic headwinds."

More than a third of Americans are considered subprime borrowers, according to an Experian study, meaning they have lower credit scores and are deemed less likely to meet their repayments on loans. As a result they usually have to pay considerably higher interest rates.

For subprime borrowers, rates for new cars average 11.5% and 18.5% for used autos, according to Experian. Prime borrowers are charged far less – 6.4% and 8.75% respectively on average.

Those that can't meet their payments face having their cars repossessed and often have great difficulty getting to work. In 2022, only 11% of commuters in the US used public transport, according to the World Economic Forum.

Cox Automotive, a leading auto organization, predicts that 1.5 million cars will be repossessed this year – 300,000 more than in 2022.

The rising number of delinquencies on auto loans is not putting off some consumers, however. A record number of new car buyers took out loans with monthly payments of $1,000 or more in the three months to June, according to data from Edmunds .

Car payments have become the highest expense for some Gen Zers and millennials, even exceeding their rent.

https://www.businessinsider.com/more-people-missing-car-payments-another-ominous-sign-for-economy-2023-10