More Americans Fall Behind on Car Payments Than in 2009

Kobe Hatch, 21, found that his 2013 Dodge Journey had been repossessed when he went outside his Chicago home in December. He had been falling behind on payments for months and knew that this was the likely outcome.

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He lost his job as an Amazon delivery driver because he didn't have a car. Now he's struggling to make rent and can't afford groceries, even with food stamps.
He said that the past few months have been very stressful, with inflation taking a toll on people.

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Hatch is one of many Americans who are facing auto repossessions, which is a bad sign for the US economy. During the pandemic, used car prices increased, which caused buyers to take out bigger loans for their vehicles. The monthly payments seemed affordable when stimulus checks were being sent out, the labor market was tight, and stocks were increasing, but now that inflation is affecting people's budgets and the job market is cooling down, many people can't afford their monthly payments anymore.

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Now, more Americans are falling behind on their car payments than during the financial crisis. In December, the percentage of subprime auto borrowers who were at least 60 days late on their bills rose to 5.67%, up from a seven-year low of 2.58% in April 2021, according to Fitch Ratings. That compares to 5.04% in January 2009, the peak during the Great Recession.

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The number of borrowers who are at least 60 days late on their car payments is increasing. This is a trend that is being seen across the country, and it is cause for concern. If you are behind on your car payments, it is important to take action as soon as possible to avoid any further damage to your credit. As interest rates continue to rise, it is becoming increasingly difficult to make monthly payments. According to Cox Automotive, the average new auto loan rate was 8.02% in December, up from 5.15% a year earlier. For subprime borrowers, the rate can be much higher. This makes it difficult for many people to keep up with their payments and could lead to more defaults.

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For Hatch, the total monthly bill for his car reached about $1,000, including the cost of insurance. Thanks to a whopping 26% interest rate, he may not be able to make the payments in subsequent months, especially now that he’s unemployed. Even if he can manage to save up enough to get the car back — about $1,100 for the repossession fee — there’s a strong chance he won’t be able to make the payments.

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The number of vehicle repossessions is rising, but it is still below pre-pandemic levels. According to Manheim, an auto auction company, the number of repossessed cars increased by 11% in 2022 compared to the previous year. However, this is still 26% lower than the number of repossessions in 2019.

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The exact timeline for when a lender can repossess a car varies by state, but it can happen in many cases as soon as a borrower is in default - often when a payment is not made on time, according to the Federal Trade Commission. Usually, it takes two or three consecutive missed payments for a repossession to happen.
If your vehicle is seized, the repossession can have a negative impact on your credit score for up to seven years, according to Experian.

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Josef Fields in Forth Worth, Texas, fell behind on his car payments and now faces a hit to his credit score. With his monthly bill at $556 for his 2021 Subaru WRX, the 25-year-old was having a hard time figuring out which costs to prioritize. Josef is not alone in this struggle, as many Americans are finding it difficult to keep up with their monthly expenses. However, there are ways to get back on track and improve your credit score. By making a budget and sticking to it, you can make sure that your bills are paid on time and avoid falling behind.

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He tried to apply for a hardship program through his bank, but it was too late. He woke up to an empty driveway a week before Christmas. Without a car, he was unable to get to work and lost his job. This left him struggling to provide for his family and pay his bills. Now, the repossession and tow fee has cost him $1,600 - about the total sum he owes in back payments. He is trying to save up for another car, but it will likely take a while. One positive is that he can walk to his job at the local post office. But whenever he needs to go to the grocery store, he has to ask a friend or take an Uber, which adds even more costs.

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Fields is worried about how this will affect his financial future, especially his dream to buy a house one day. He estimates that the repossession shaved about 40 points off his credit score. This will likely make it difficult for him to get approved for a loan in the future, and may even increase the interest rate he would have to pay.
"It's more difficult for people my age and younger to get credit, and when something like this happens it can screw us over in the long run," he said.

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Zhea Zarecor in San Antonio is currently trying to negotiate with her lender to avoid having her 2013 Honda Fit repossessed. In the meantime, she's hiding it.
The 53-year-old, who is currently in school for her bachelor’s in information technology, splits the monthly bill for the car with her roommate. But then the roommate lost his job, and with prices for groceries and everyday items increasing, there just wasn’t enough for the car payments.

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Zarecor is trying to make extra money with odd jobs like contract secretarial work and participation in medical studies, but it often feels hopeless, she said. Zarecor has been looking for full-time work for months, but has had no luck. She's hoping that by taking on some extra work, she'll be able to make ends meet.
"I feel like our money doesn't go as far as it used to," she said. "I don't see prices going down, so the only relief I see is when I get my degree."