Topline
Higher car prices and rising interest rates are hindering car owners’ ability to afford their vehicle payments, as 6.1% of subprime auto borrowers are at least 60 days past due on their loans, the highest percentage in data dating back to 1994, according to Bloomberg, which cited Fitch Ratings.
Key Facts
The 6.1% of borrowers behind on auto loans last month marks a surge from the 2.6% reported in May 2021, after the federal government significantly lowered interest rates in the wake of the Covid-19 pandemic.
Higher vehicle prices and borrowing costs—along with continued higher than usual inflation—have fueled the rising number of Americans behind on their auto loans, a problem that might persist given forecasts from Federal Reserve officials who believe high interest rates will continue through 2026.
Margaret Rowe, a senior executive at Fitch, told Bloomberg subprime borrowers can be the first indication of “where we start to see the negative effects of macroeconomic headwinds.”
Generation Z and millennials may account for a significant amount of the borrowers behind on their auto loans, as the two generations recorded auto loan delinquency rates last year that were significantly higher than pre-pandemic levels, according to an NBC News report that cited TransUnion.
Interest rates for used cars are 13.5% on average for those with fair credit but can rocket up to around 21% for those with the worst credit, according to Bankrate.
Key Background
Rising car prices have in part been caused by a pandemic-induced computer chip shortage, and some chip shortages could continue into 2024, according to J.P. Morgan.
Further Reading
Car Owners Fall Behind on Payments at Highest Rate on Record (Bloomberg)
September Inflation Comes In Higher Than Expected (Forbes)