Subprime Auto Loans Show Increasing Signs of Trouble

by Chris Teague

Published: October 24th, 2023

subprime auto loans show increasing signs of trouble

We thankfully seem to be coming out of some of the economic challenges brought on by the pandemic, but a new crop of financial hardships is on the horizon. Subprime auto loans, which are issued to people with lower credit scores, are falling into past-due status at an alarming rate, reaching the highest rates of borrowers behind on loans in almost 30 years.

Subprime borrowers at least 60 days past due on their car loans grew to 6.11 percent last month, the highest rate since 1994. A combination of rising interest rates and higher purchase prices have made monthly payments more expensive than before, and an unstable job market isn’t helping the situation.

Repossessions are expected to show an increase this year of up to 300,000 actions as bills pile up for unfortunate buyers. As Automotive News pointed out, interest rates for subprime borrowers can be as much as three times more than those for everyone else, pushing payments up by hundreds a month in some cases.

We’ve been hearing threats of a recession for months, if not a couple of years now, but the economy keeps adding jobs, and things seem to continue plugging along. That said, the uptick in subprime defaults and repossessions could be a sign of trouble to come, as the least privileged people are often the first to feel the pinch.

[Image: Jonathon Weiss via Shutterstock]

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#CarShopping #AutoLoans #SubprimeAutoLoans

Chris Teague

Chris grew up in, under, and around cars, but took the long way around to becoming an automotive writer. After a career in technology consulting and a trip through business school, Chris began writing about the automotive industry as a way to reconnect with his passion and get behind the wheel of a new car every week. He focuses on taking complex industry stories and making them digestible by any reader. Just don’t expect him to stay away from high-mileage Porsches.

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13 of 52 comments

Billccm on Oct 24, 2023

I have been hearing this same story off and on for years. The shyster car lots still have sales day after day and the credit unions and banks still have repo cars at auction and 'write off' the loans. Yes our entire financial system is built on a house of cards, but the disastrous collapse predicted still has never happened. I have always questioned how a bank's 'write off' fixes all the delinquent loans, but it seems to happen every 10 years or so and things seem to be just fine in the car business.

2 Reply
Bkojote on Oct 24, 2023

Someone who didn't pass econ 101 at discount college is gonna be like 'SEE THIS HERE THE PROBLEM WITH BIDEN"

7 Reply
- See 5 previous
- Theflyersfan on Oct 24, 2023
  
  Maybe starting in middle school, mandatory in high school - there must be courses on personal finances. How to use credit, how to buy or finance large purchases, how to handle debt, college expenses and so on. Relying on parents hasn't worked for everyone if the only example their kids see are two parents hiding the fact that they are leveraged to the hilt to afford the McMansion, 2 expensive SUVs, expensive vacations, etc. But in reality they are one medical expense or job loss away from total ruin. Sins of the parents and so on. As kids, we were taught that, unless it's a house, if you can't buy it with cash, wait until you can. And that attitude has helped us avoid a lot of financial pitfalls when emergencies do come up and there's a cushion to land on.
  
  2
- EBFlex on Oct 24, 2023
  
  "Someone who didn't pass econ 101 at discount college is gonna be like 'SEE THIS HERE THE PROBLEM WITH BIDEN""
  Ah, that's right. Resident Biden is the only president who has no influence on anything. I forgot.
  
  3
- Jeff on Oct 24, 2023
  
  Theflyersfan--There are resources through nonprofits that can help people with planning a budget and contacting creditors to work out a payment plan. You are correct many parents don't know how to manage their own money and are in debt so leaving it up to parents to teach their children financial responsibility will not happen for many. You have to have parents that know and practice financial responsibility and teach it to their children. There is also Dave Ramsey who has a course and can show people how to budget and save. Blaming financial woes on politicians will not do anything to help people that are in debt.
  
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- Art_Vandelay on Oct 25, 2023
  
  That's a lie @EBFlex. when gas prices drop 3 cents these same posters are quick to give him the credit
  
  3
- EBFlex on Oct 25, 2023
  
  Art don't forget lettuce, buns, hot dogs, hamburgers, potato salad etc. Sad part is, rarely do good things happen that they can take credit for, so all I hear is how it's not Resident Biden's fault.
  
  3
- Jeff on Oct 26, 2023
  
  Art_Vandelay--Oil prices and products from oil are determined by the commodities market not by Biden nor was it determined by Trump when he was President. I believe most of us on this site understand that. Neither Biden, Trump, or any past President is responsible for an individual's debts or how they manage their money.
  
  Like
The Oracle on Oct 24, 2023

Good. We need a surge of repo’d used cars to hit the market and further cool prices. Wanna lend money to people without the means to pay you back?

1 Reply
- Dartdude on Oct 25, 2023
  
  You want to buy a used repo? These owners don't do any maintenance and surely will abuse the vehicle before giving it up. They will end at a auction and on sleazy used car lot.
  
  2
3SpeedAutomatic on Oct 26, 2023

I'm waiting for the other shoe to drop via real estate.
Many overpriced homes were bought during COVID. Even though the going interest rate was comparatively low compared to today, government money has ebbed and student loads are now due.
Repo real estate agents await with bated breath. 😣😣😣

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- See 1 previous
- FreedMike on Oct 26, 2023
  
  People waiting for a crash in real estate prices will be waiting a while. The last crash was caused by ridiculously lax mortgage underwriting and a large number of people who took out adjustable rate mortgages that they couldn't afford to pay once the rates adjusted upwards. All those pandemic-era loans were underwritten FAR more carefully, and products like ARMs and interest only were just not popular (with fixed rates in the 2-3% range, why would anyone want anything but a fixed?). I know - I underwrote in both eras. Bottom line - the folks who bought during the pandemic were generally highly qualified folks who have a ridiculously low rate, and thus a lower payment. Both those factors are definitely HIGHLY positive risk factors.
  Will prices come down? Probably. Will there be an outright crash? I doubt it. I suppose all those folks with the 3% mortgages could just "mail in their keys" to their lenders and abandon ship, but to what end? They're buying something in a pricier market, at a higher rate.
  What WOULD cause a crash would be a general economic downturn, and it'd have to be a hella big one.
  
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- Jeff on Oct 26, 2023
  
  FreedMike--I was worried last year when I sold my house in NKY that with higher interest rates that it would effect the sale of my house. Fortunately I sold my house quickly for more than I thought I would get to a cash buyer. Where I live now the real estate has been slowing down and some prices have gone down but it is hardly bottoming out. The vehicle market could bottom out if there are enough loans that are defaulted and manufacturers and dealers continue to raise prices but then it might not bottom out its much too soon to tell. I believe vehicle sales will slow down but that would not be bad for the consumer.
  
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