zahwa News

Rising costs lead to overdue loans

Late car payments in the US have hit their highest mark in decades, with 6.56% of subprime borrowers at least 60 days overdue on their loans since January. Credit agency Fitch Ratings says this percentage is the largest recorded since it began collecting this data in 1994, with rising costs and high interest rates being the two primary factors fueling the trend. Prime borrower scores are less affected by recent trends, with 60-day delinquencies only increasing from 0.35% to 0.39% from January 2024 to January 2025.

On a broader scale, the number of car borrowers with payments 90 days or more late has increased to 3%. However, these troubling auto loan numbers apply to those with a credit score of 640 or below. While February figures are still pending, delinquencies often rise during this month before decreasing in March and April. 

Rising car ownership costs extend beyond higher loan prices, as insurance has become more expensive. After rates increased 16.5% in 2024 and 12% in 2023, insurers are predicted to raise costs 7.5% on average in 2025, according to PR Newswire. Cox Automotive data cites the average price of a new car this month at $48,641, up from $47,218 in March 2024, and will continue to rise now that year-end sales are over. Luxury vehicle average costs have decreased, however, with Tesla, BMW, and Lexus having lower prices during February. Pickup truck and SUV sales have recently peaked, with costs becoming too great for many Americans.

Drivers also feel the pain of paying for additional car loan products or services like extended warranties, which can be unintentionally purchased when dealers include them in paperwork without clear discussion. Extended warranties are one of auto dealers’ most significant income sources.

Options when falling behind on car payments

In an interview with The New York Times, Mitria Spotser, vice president and federal policy director at the Center for Responsible Lending, recommends that borrowers with late loan payments on their cars call their servicer. This call can help schedule a delayed payment or receive a loan extension—both of which can help borrowers avoid having their vehicle repossessed. An alternative strategy is refinancing your car at a lower interest rate or longer loan term.

Borrowers should record any agreements, like a loan extension, in writing for reference, as contractors hired by loan services to repossess cars aren’t required to give notice before a seizure. A vehicle repossession can stay on your credit report for up to seven years.

Final thoughts 

Awareness of rising auto loan delinquencies can help borrowers prioritize proactive measures to stay on track toward repayment. If you’re shopping for a new car, it’s vital to avoid falling into the trap of a one-and-done dealership visit where you don’t make thorough price comparisons with other listings. 

When buying from a dealer, ensure you’re not paying for unnecessary add-on services like extended warranties, paint protection, rustproofing, and gap insurance.