Auto loan defaults are on the rise mostly for sub prime borrowers | Community

As Americans battle inflation and rising interest rates auto lenders are now seeing more and more people fall behind on their car loans.

According to S and P Global Mobility there are more delinquencies being seen now than during the great recession.

People across the board are defaulting on their car loans. But, the biggest spike is among sub prime borrowers. Those are people who have 600 and below credit scores.

To help curb inflation the Feds have raised interest rates 10 consecutive times since March of 2022.

Higher interest rates makes it more expensive for people to purchase big ticket items like automobiles.

“You could have purchased an automobile at 2% interest a little more than a year ago,” said Dr. Tim Nash, Senior Vice President, Emeritus, Director of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship and

the McNair Endowed Chair in Free Market Economics at Northwood University.

Today, he said, they are right around 8% on a 7-year automobile loan.

The economist said interest rates on vehicles are going up and so is the payment for the vehicle and there’s more he said.

“And then to add misery the automotive side less than ten percent of all automobiles cost under $30,000. So automobiles today are a lot more expensive today than they were five years ago or ten years ago.”

People across the board are defaulting, especially the sub prime borrowers. They are having a hard time making their car payments. According to Cox Automotive car loans that are 60 days or more past due increased by 5.3% in May to its highest level since 2006 and sub prime loans saw 6.48% increase in May , even as wages have increased.

“Wages have gone up but inflation has gone up at a faster pace than wages for the 22 of the last 24 months,” he said.

It has cost people more to buy the same things over the last two years. Credit card debt is also on the rise. Dr. Nash believes the US could be headed for a recession in the not so distant future.

“The possibility of a recession is very real,” he said.

He advises that people buy only what they need and put off making any big ticket purchases for the time being.