Auto Loan Defaults Are On the Rise Mostly for Sub Prime Borrowers
MID-MICHIGAN (WJRT) - As Americans battle inflation and rising interest rates, auto lenders are seeing more and more people fall behind on their car loans.
According to S&P Global Mobility, there are more delinquencies being seen now than during the great recession.
People across the board are defaulting on their car loans. But, the biggest spike is among subprime borrowers. Those are people who have credit scores of 600 and below.
The Federal Reserve has raised interest rates 10 consecutive times since March of 2022 to help curb inflation. Higher interest rates makes it more expensive for people to purchase big ticket items like automobiles.
"You could have purchased an automobile at 2% interest a little more than a year ago," said Tim Nash, senior vice president emeritus and director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University.
He said interest rates on a seven-year auto loan is right around 8% nowadays. As interest rates increase, the monthly payment will follow.
"And then to add misery the automotive side less than 10% of all automobiles cost under $30,000," Nash said. "So automobiles today are a lot more expensive today than they were five years ago or 10 years ago."
People across the board are defaulting, especially the sub prime borrowers. They are having a hard time making their car payments.