A record number of subprime borrowers are 60 days or more behind on their car loans, according to the ratings agency Fitch. Federal Reserve data backs up the conclusion. Analysts think auto loan delinquencies will rise further next year but say the peak is in sight.
Fewer Subprime Loans, More of Them Late
Historically high car prices squeezed most subprime borrowers (those with credit scores under 620) out of the new car market entirely in 2023. Subprime and deep subprime loans accounted for nearly a quarter of the market as recently as 2018 but are barely 8% today.
Many subprime borrowers who bought a new car recently struggle to pay for it. The percentage of subprime auto borrowers at least 60 days late on car payments rose to 6.11% in September, according to Fitch. That’s the highest figure since the agency began tracking data in 1994, Bloomberg reports.
The New York branch of the Federal Reserve Bank, in its quarterly Household Debt and Credit Report, shows a sharp spike in loans both 30 and 90 days late so far in 2023.
Analysts: Number Will Peak Next Year
Some analysts believe the delinquency rate could move higher next year. Moody’s Investors Service told CNN last week that auto loan delinquency could crest “in 2024 at between 9% and 10%, compared with 7% pre-COVID.”
Borrowers are squeezed by historically high interest rates and the return of student loan payments, which the federal government previously paused for more than three years in response to the COVID-19 pandemic.
Cars are far more expensive for those with struggling credit. Bloomberg explains, “For those with the best credit scores, interest rates are about 5.07% for a new car and 7.09% for a used vehicle on average, according to Bankrate. And for those with the worst credit, rates are about 14.18% and 21.38% for new and used cars, respectively.”
There Is Some Good News for Shoppers
The news isn’t entirely grim if you’re in the market for a new car and will need a loan to get one. Kelley Blue Book’s parent company, Cox Automotive, reports it grew easier for most Americans to qualify for a car loan in September.
The average monthly car loan payment has fallen to $765 from an all-time high of $794 in December.
