(NewsNation) — Americans with lower credit scores are falling behind on their car payments at the highest level in decades.
A record 6.65% of subprime auto loans were at least 60 days past due in October, the largest share in data going back to 1993, according to Fitch Ratings. That’s up from 3.76% four years earlier.
The increase suggests more borrowers — particularly those in riskier credit tiers — are struggling to keep up as total household debt climbs to $18.6 trillion.
Auto loans are the second-largest category of consumer debt, behind mortgages. A recent report from the Federal Reserve Bank of New York also points to mounting strain: In the third quarter, about 3% of auto loans among all borrowers became seriously delinquent — 90 days or more past due — the highest rate since 2010.
The car industry goes ‘K-shaped’
Americans haven’t felt this bad about the economy in years, but the pain isn’t being felt evenly. Growing evidence suggests lower-income consumers are falling behind, while higher earners continue to spend.
The divide has come to be known as the “K-shaped” economy — where some households thrive while others struggle — and it’s become especially evident in the auto market.
Subprime borrowers are falling behind at historic rates, but among prime borrowers — those with stronger credit histories — the delinquency rate hasn’t budged. Just 0.37% of prime auto loans were at least 60 days past due last month, unchanged from a year earlier, Fitch data shows.
Separate research from Fitch found that the top 10% of U.S. households now account for nearly half of all consumer spending. Meanwhile, the average price paid for a new car recently topped $50,000 — a milestone driven largely by luxury buyers.
“The $20,000-vehicle is now mostly extinct,” said Erin Keating, Cox Automotive executive analyst. “Many price-conscious buyers are sidelined or cruising in the used-vehicle market.”
At the same time, the share of trade-ins with negative equity has climbed to 28% — a four-year high — with underwater borrowers owing an average of $6,905 more than their vehicles are worth, according to Edmunds.
Elevated interest rates have added to affordability pressures. Last quarter, the average APR for new vehicle purchases was 7%, and nearly 1 in 5 buyers who financed committed to monthly payments of $1,000 or more, Edmunds data shows.
Credit risks remain contained
Concerns about broader financial contagion grew in September after Tricolor, a subprime auto lender and used car dealer, unexpectedly declared bankruptcy. Still, some industry analysts say the risk remains contained.
“We see no signs of a domino effect poised to rock the auto market or the economy,” said Jonathan Smoke, chief strategy officer at Cox Automotive, in a note last month.
Spencer Rogers, a credit strategist at Goldman Sachs Research, echoed that view, describing the Tricolor collapse — and others like it — as “idiosyncratic events” rather than a signal of a looming credit crisis.
“We aren’t seeing any of the indicators that would normally signal the onset of a broader default cycle,” Rogers said earlier this month.