The American dream of car ownership is turning into a nightmare for millions.
Subprime auto loan delinquencies have just hit their highest level in 32 years, a record that stretches all the way back to 1994, according to Fitch data analyzed by CarEdge. At the same time, the average monthly payment for a new car has soared to $774 per month. For many borrowers, that payment is landing on top of existing credit card balances, which leaves very little room for error in the monthly budget and is pushing more people to look at consolidation tools before they fall behind.
It’s a flashing red light for the economy, signaling that a growing number of car buyers are in financial trouble.
More borrowers than ever are 60 or more days behind on their car payments, according to the replort. This isn’t just a problem for a handful of people, it’s a systemic issue concentrated among those with lower credit scores. When you’re 60 days late, the bank starts thinking about taking your car back.
For years, lenders have been stretching out loan terms to 72, 84, and even 96 months to make sky-high car prices seem more affordable. Some credit unions are even offering 10-year car loans, a practice that industry veteran Brian Binstock calls a “death trap for customers.”
These ultra-long loans are a short-term fix with disastrous long-term consequences. They may lower the monthly payment, but they leave borrowers owing more than the car is worth for years on end. You’re trapped, unable to trade in your car or sell it without coming up with thousands of dollars to cover the negative equity.
Lending standards have been getting looser and looser, perhaps aiding to recent strain. Some lenders have been approving loans for people with credit scores in …
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