The recent surge in car loan defaults among Americans, particularly those with subprime credit, has raised concerns about economic stability and echoes warnings similar to those preceding the 2008 financial crisis.
As of January 2025, 6.6% of subprime auto borrowers were at least 60 days past due on their loans, marking the highest level since records began. This is comparable to the situation during the 2008 financial crisis.
The cost of car ownership has increased significantly due to higher vehicle financing (averaging nearly $50,000), high loan rates (over 9% for new cars and almost 14% for used cars), and rising insurance and maintenance costs.
But, the majority of delinquencies are among subprime borrowers, who face greater financial strain due to higher interest rates and living costs.
The increase in delinquencies has sparked fears of a potential recession, as it reflects broader economic stress and financial strain on consumers. The last time the U.S. saw such a significant increase in defaults was before the 2008 financial crisis, which was triggered by subprime mortgage defaults.
Auto loan debt is substantial, with Americans owing over $1.64 trillion, making it the second-largest category of consumer debt after mortgages.
In all, high interest rates, inflation, higher living costs, and tighter lending standards are contributing to delinquencies.
“People that are in the middle of their loan, they may be hitting the point where the cost of living has gotten to them, and they can no longer make these payments,” said expert Jessica Caldwell, a researcher at Edmunds, via Daily Mail.
Overall, the surge in car loan defaults is a disturbing sign of economic trouble, reflecting broader financial stress and raising concerns about the potential for a recession. And the impending tariffs won’t help matters. Most economists agree that tariffs are generally detrimental to economic health, leading to inflation and reduced economic growth. They argue that free trade is more beneficial for economic output and income.
The imposition of tariffs can lead to a cascade of negative economic and geopolitical consequences, supporting the notion that “none of this will end well.”