It Sure Feels Like a Car Loan Crisis Is Coming

Late car payments are up, but car repossessions are down. History indicates that trend will change and soon.

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There could be bad news around the corner as more and more car buyers are having difficulty keeping up with auto loan payments.

According to a report from Automotive News, 1.63 percent of auto loans haven’t received a payment in at least 60 days. That number is 0.4 percent higher than it was the same time last year, and the highest in the past four years.

That being said, car loan default rates are still below pre-pandemic levels. Satyan Merchant, the Senior Vice President of TransUnion told the outlet that the increase can be attributed to changes in origination — or where borrowers stand in credit and spending.

Borrowers who took out auto loans in the second and third quarters of 2020 are keeping up with them better than pre-pandemic borrowers, according to TransUnion. But auto loans in the second and third quarters of 2021 are starting to show similar delinquency rates as debt from before COVID-19.

“There is slight worsening performance of recent vintages at a risk tier level when we isolate near-prime and above cohorts, and we suspect pandemic score migration may be playing a role,” Merchant said in a statement.

He gave the example of a subprime customer whose credit improved in 2020 and was near prime for a 2021 car loan but who now behaves more like a subprime consumer.


Merchant says inflation and interest rates can increase delinquencies, but unemployment was the most likely metric for the industry to watch.

This all begs the question: if delinquency rates are up, why aren’t repossessions? The outlet reports Equifax found 2.14 percent of auto loans in the first six months of this year were more than 120 days behind on payments – that criteria classifies them as a default. It’s not a great number, but it’s much lower than the 2.9 percent rate from in 2019.


It’s reported that when all is said and done in 2022, the default rate would reach 2.3 percent – which would be the lowest level in the past 15 years, according to Jonathan Smoke, Cox Automotive Chief Economist.

Historically, about 80 percent of defaults end in repossessions, and the repossession rate also is likely to be lower in 2022 than in 2019, Smoke said. In 2021, 1.1 million vehicles were repossessed — down 32 percent from 2019 levels and down 17 percent from the 2012-21 average, according to Manheim data Smoke cited.


So, what does this tell us? Well, from the looks of it, more and more people are falling a month or two behind on their auto loans, but they are not letting the delinquencies lead to defaults. That’s a good thing. As for if this behavior is sustainable? That’s sort of anyone’s guess.

Remember 2008, when everyone was unable to pay their mortgage? Feels familiar to me.


We’ll see what 2023 holds.