US Auto Loan Delinquencies Hit 15-Year High, Flashing Warning Signs
A record number of Americans are falling behind on car payments, signaling growing stress on household budgets and a potential pullback in consumer spending.
A growing number of American households are struggling under the weight of record-high car payments, with loan delinquencies surging to levels not seen in over a decade. The trend is a stark warning sign for the U.S. economy, flagging significant financial stress that could curtail the consumer spending that has kept growth resilient.
Overall auto loan delinquencies for payments 30 or more days past due climbed to 3.88% in the most recent quarter, the highest level since the Great Recession. The pressure is most acute among subprime borrowers, a segment with lower credit scores, where delinquency rates have hit an unprecedented 15.78%—the highest figure since data collection began in the early 2000s.
The surge in defaults is a direct consequence of a pincer movement on consumer finances: stubbornly high vehicle prices and the sharp rise in interest rates over the past two years. With the average price for a new vehicle hovering near $50,000, many buyers have been forced to take on larger loans. When combined with elevated borrowing costs, this has pushed monthly payments to record highs, stretching household budgets thin.
This dynamic has exposed a growing divide in the American economy, a phenomenon some analysts are calling a "K-shaped" consumer landscape. While high-income households have largely maintained their spending power, lower and middle-income families are facing mounting financial strain. Recent analysis from Bank of America and McKinsey confirms that these groups are beginning to pull back, particularly on non-essential purchases.
"The cracks in consumer credit are becoming more apparent, and the auto loan market is the epicenter," noted a report from Brandywine Global. The firm's analysis highlights that the struggles in the auto loan sector are a clear signal of a bifurcated economy, where a significant portion of the population is falling behind.
The downstream effects of this trend pose a risk to the broader economy. Consumer spending is the primary engine of U.S. GDP, and a sustained pullback could trigger a slowdown. Discretionary sectors, such as retail, restaurants, and travel, are most vulnerable as households prioritize essential payments over wants. As consumers divert more of their income to service auto debt, sales in these sectors could soften, potentially impacting corporate earnings and employment.
Economists and investors are now watching these delinquency rates as a key leading indicator of financial health. With a record number of Americans behind on their auto loans, the resilience of the U.S. consumer—and the economy itself—faces a critical test in the months ahead.