Late Car Payments Hit Highest Peak Since 1990s As Borrowers Shoulder Heavy Loan Rates; Here’s What You Can Do

Borrowers are falling behind on car loan payments at the highest rate in 27 years. And subprime borrowers—those with credit scores below 640—are struggling the most to keep up with their monthly payments, according to the latest data from Fitch.

The share of subprime borrowers who were at least 60 days late on their car payments rose to 6.11% in September, up from 5.01% just three months earlier, according to the report. Delinquencies crept up slightly for prime borrowers—with credit scores of 680 or above—to 0.27% from 0.25% three months before.

	Prime Delinquencies	Subprime Delinquencies
3 Months Prior	0.25%	5.01%
1 Year Prior	0.24%	5.28%
Current Month	0.27%	6.11%
Source: Fitch

Delinquencies have been rising along with the cost of living. According to the Census Bureau, average income before taxes increased by 7.5% between 2021 and 2022, but annual expenditures—including housing and transportation—outpaced wage growth, jumping by 9% over the same period.

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Car Loans Cost More For People With Low Credit Scores

Subprime borrowers may have a harder time making their payments because they tend to have higher auto loan interest rates. If you have a low FICO credit score, financing a car purchase will be more expensive than it would be with a high score. In fact, some low-credit-score borrowers face rates of up to 21%.

The average auto loan interest rate for new cars is about 7%, and for used cars, it’s around 11%, according to Experian’s State of the Automotive Finance Market report. But if your credit score is between 781 and 850, the average interest rate on a new car loan drops to 5%.

The opposite is true at the other end of the spectrum. Rates jump to an average of 14% for borrowers with scores below 500.

Financing a used car is even more expensive. If your credit score is between 601 and 660, the average used car loan interest rate is 13%. If your score is between 600 and 501, the average rate jumps to 18%.

Credit Score Range	New Car Loan Rates	Used Car Loan Rates
781 to 850	5.07%	7.09%
661 to 780	6.44%	9.06%
601 to 660	8.99%	13.49%
501 to 600	11.72%	18.49%
300 to 500	14.18%	21.38%
Source: Experian

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The Expensive Necessity of Cars

For most Americans, cars aren’t a luxury; they’re a necessity for getting to work. More than two thirds of Americans—69%—drive alone to their job. At the same time, a car typically adds to the financial burden for people with lower incomes. Transportation costs make up about 17% of Americans’ personal annual expenditures, second only to housing costs, according to the Bureau of Labor Statistics.

5 Strategies if You Fall Behind on Car Payments

Financial trouble can be stressful, especially when it affects your ability to pay for essentials. But before you stop making car payments altogether—which can ding your credit score and make it tough to qualify for affordable loans in the future—consider these options.

1. Talk to Your Lender About Payment Options.

As soon as you know you won’t be able to make your car payment, call your lender. Lenders often find it less expensive to work with customers who need help paying their loan than to repossess a vehicle, so you’ll likely be offered options to help you afford your payments. Those options may include a temporary deferment, a change in your payment due date or a payment plan that will lower your monthly bill.

2. Refinance Your Car Loan.

You can also try to refinance your loan at a lower rate. This might be a good option for people who have a strong credit score or whose credit score has improved since they first took out the loan. You may also be able to get a new loan with a longer repayment timeline, which could make your monthly bills more manageable.

3. Sell Your Car.

If your budget can no longer be stretched to cover your car payments, consider selling your vehicle and getting something cheaper or opting to use public transportation. If the sale price is less than what you owe, it may be worth it to pay the difference out of pocket in order to save your credit score.

4. Consider a Side Hustle or Part-Time Job.

It’s easier than ever to make money on the side thanks to a growing gig economy. From dog walking to delivery driving, technology has helped people get side jobs and advertise their services on a variety of platforms. Forbes Advisor has compiled a long list of side hustles. People who want to keep their car may find they’re able to do so through a combination of refinancing their loan or deferring payments plus earning extra money on the side.

5. Surrender Your Car Rather Than Having It Repossessed.

If you’re already behind by several payments and are in danger of having your car repossessed, it might be time to surrender your car to the lender. Surrendering your car voluntarily will do far less damage to your credit score than an involuntary repossession.

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