If you are behind on your car payment, turns out you are not alone.
Fitch Ratings data shows that the number of subprime automobile borrowers who are at least 60 days past due on their loans rose to 6.56 percent, the most since the agency began collecting data in 1994.
The Fitch findings were reinforced by similar data released by the Federal Reserve Bank of New York.
The Federal Reserve Bank of New York reports that the number of auto loans among all borrowers that are categorized as delinquent — 90 days or more past due — rose to 3% in the fourth quarter, the highest level since 2010.
“The lower-income level has been really affected,” Mike Girard, senior director for asset-backed securities in North America for Fitch, told Bloomberg. He expects this trend to continue due to persistent inflation and high interest rates.
Economists see these trends as part of a broader economic strain on households.
“American households, especially in the lower to middle-income range, are coming under increasing financial stress,” said Dave Gulley, a Bentley University economics professor. This pressure is particularly evident in households with lower credit scores.
“High new and used car prices, along with higher auto loan rates, have left a record number of car owners with $1,000+ monthly payments,” Gulley said.
February’s disappointing jobs report, which revealed a significant hiring slowdown, threatens to further strain already vulnerable borrowers. According to Gulley, economic deceleration will inevitably increase default rates, especially as most Americans have already depleted the extra savings they accumulated during the pandemic.
The defaults create a negative feedback loop in the market. Rising delinquency rates typically force lenders to tighten their standards — requiring larger down payments, for instance — which puts additional pressure on consumers, especially in the subprime segment. Despite some loosening of lending criteria since the post-financial crisis era, the subprime market remains vulnerable to increasingly stressed American households.
The rising delinquencies point to fundamental economic weaknesses, according to Mariano Torras, an economics professor at Adelphi University.
“The American economy has been unhealthy for much longer than a typical business cycle,” Torras said. “The vaunted unemployment rate statistic greatly misleads about deteriorating job quality and growing insecurity for the masses, as well as about the increased number of people exiting the labor force.”
Torras said what is happening among subprime auto borrowers is the “canary in the coal mine” and that the problems in subprime auto loans are likely to spread to other parts of the economy.
“The health of the economy and the average consumer has been weak for some time, with tens of millions of households - mostly in red states - at or near precarity,” Torras said. “The delinquencies we are seeing are only likely to become more widespread. I could easily see this extending to mortgages.”