More Americans Can’t Keep Up With Car Payments

A record number of Americans are behind on their car loan payments as higher interest rates and prices weigh on consumers.

Why It’s Important

The jump in delinquent car payments to record highs signals more financial stress and uncertainty for consumers as the economy slows. With inflation still elevated and the Fed committed to further rate hikes, the pressure on household budgets will unlikely let up soon.

Cars have become increasingly unaffordable due to limited supply and strong demand over the past few years. Prices surged as pandemic-related shutdowns constrained production. And demand stayed resilient as consumers shifted away from public transit.

While supply chain issues have improved, interest rates on car loans have shot higher as the Fed tightens policy, making monthly payments more expensive. On top of pricier cars and steeper borrowing costs, the expiration of pandemic stimulus measures has also left some consumers more vulnerable. Savings built up during the pandemic have fallen, especially for lower-income households.

Rising delinquencies could be an early sign of broader economic trouble as consumers cut back on spending to keep up with loan payments. Previous spikes in late auto payments have tended to precede recessions. Lenders may tighten credit if they fear taking on more risk.

For consumers already struggling with inflation and rising rates across multiple fronts, falling behind on their car loans can create a downward spiral. Vehicles may be repossessed, damaging credit scores and making future borrowing even harder. While defaults are still relatively low historically, the rapid increase highlights growing financial fragility.