All articles tagged with #subprime borrowers
The share of risky subprime borrowers at least 60 days behind on auto loans has reached a record high of 6.65% in October, driven by inflation, rising interest rates, and economic pressures, signaling economic weakness and increasing financial strain on consumers.
The percentage of subprime auto borrowers in the US who are at least 60 days behind on their car payments reached 6.1% last month, the highest rate in nearly 30 years, according to Fitch Ratings. Higher car prices, rising interest rates, and inflation have contributed to the increase in delinquency rates. Federal Reserve officials predict that high interest rates will persist through 2026. Generation Z and millennials are among the groups with higher delinquency rates.
The rate of subprime borrowers behind on auto loan payments by more than 60 days reached a record high of 6.11% in September, according to Fitch Ratings. This indicates ongoing economic struggles for lower-earning workers amid high inflation, a challenging job market, and the resumption of federal student loan payments. Delinquency rates are expected to continue rising, peaking at around 10% before declining. The high interest rates and increasing reliance on borrowing are contributing factors. Vehicle repossession rates are also on the rise, leaving many without transportation.
Drivers who took on auto loans at high interest rates and paid sky-high prices for cars could face some headaches down the road as car values pull back in an economic slowdown. Negative equity — or owing more on your car than it's worth — is building, particularly in used cars bought by subprime borrowers. The auto industry pays close attention to loan-to-value ratios — the difference between the loan amount and the market value of the car. The higher the number, the more vulnerable the consumer. As vehicle values have declined in recent quarters, used car loan-to-value ratios at origination have trended upward.
Automakers are facing pressure to offer discounts as higher borrowing costs make consumers nervous. The average interest rate on a new car or truck loan is at 8.95%, compared to 5.66% a year ago. Recent banking turmoil has tightened credit access and made lenders "acutely aware of the risk that they are potentially dealing with and essentially are trying to ensure that they are getting a risk-adjusted return." The same pressures are causing dealers to offer discounts, which averaged about $1,474 per vehicle in February, the highest level in a year.