Car owners fall behind on payments at highest rate on record, per Bloomberg.

In nearly three decades, Americans are experiencing the highest rate of falling behind on their auto loans. As interest rates rise, making newer loans more costly, millions of car owners are encountering difficulties in meeting their payment obligations. This scenario reflects financial distress in an economy that is sending mixed signals, particularly regarding the state of consumer spending.

According to Fitch Ratings, the percentage of subprime auto borrowers who are at least 60 days past due on their loans reached 6.11% in September, the highest level since 1994. Although this figure briefly dipped from a previous high of 5.93% in January, it has been climbing due to factors such as using up tax returns, navigating a less stable job market, and coping with persistent inflation.

This surge in delinquencies is driven by the combination of higher car prices and borrowing costs. Furthermore, with the Federal Reserve's commitment to keeping interest rates elevated for an extended period, the problem is expected to persist. The situation is further compounded as millions of Americans have recently resumed payments on their federal student loans.

"The subprime borrower is getting squeezed," noted Margaret Rowe, a senior director with Fitch's asset-backed securities group. "They can often be a first line of where we start to see the negative effects of macroeconomic headwinds."

Access to a car is essential for many people, especially in areas with limited public transportation. However, vehicle prices, both for new and used cars, are historically high, having only slightly declined from their peaks during the pandemic. This has put car ownership out of reach for many low-income workers who rely on vehicles for their daily commute.

For those with the best credit scores, average interest rates are approximately 5.07% for new cars and 7.09% for used vehicles, according to Bankrate. In contrast, those with the worst credit scores face much higher rates, with around 14.18% for new cars and 21.38% for used vehicles.

As payment delinquencies continue to rise, repossessions are also expected to increase. Cox Automotive estimates that 1.5 million vehicles will be repossessed this year, up from 1.2 million the previous year.