Car loans are starting to become a problem for some subprime borrowers. While borrowers with the highest credit scores are not defaulting on their loans as often, subprime borrowers certainly are.
In fact, some reports from Reuters claim that October saw an increase in defaults, so that 6.65% of subprime borrowers are now at least 60 days behind on their car payments. They also note that this is the highest percentage ever recorded. That means people are defaulting on their car loans today more than they were during the Great Recession or the pandemic.
Economic strain
While each individual borrower may have their own reasons for missing payments, the rising rates indicate economic strain in the population as a whole. People are finding it increasingly difficult to make all of their payments. Other costs are rising, and everyday expenses are taking up more and more of the budget. Some borrowers may have lost their jobs and are struggling to find new employment.
Often, car loan defaults can be seen as a red flag showing that the economy is not healthy. The reason for this is that people rarely want to default on their car loans. Cars are such an essential part of their daily lives that they will miss many other types of payments before missing a car payment. So if they are missing car payments in record numbers, it could indicate that there is a lot of other outstanding debt that they also cannot pay off.
This may lead to a rise in bankruptcy over the next year, and those who are facing high levels of debt must be aware of exactly what options they have.
