A growing number of Americans are falling behind on their car payments: About 9.3% of auto loans given to people with low credit scores were 30 days or more past due on payments at the end of last year, the largest share since 2010, according to an analysis by Moody’s Analytics.
The last few years have been extraordinarily good for consumers, who have hoarded extra cash during the pandemic, but skyrocketing inflation is eroding those gains. Car prices, in particular, have skyrocketed due to vehicle shortages. Many borrowers took out large loans to buy them off, leaving little breathing room to keep payments on schedule if they hit a rough patch.
“Families that were on the financial edge to begin with may have fallen to the point where it’s hard to keep up with the car loan and everything else, and people have to make some very difficult decisions,” said Pamela Foohey, a professor at the Cardozo School of Law, who studies consumer law.
Stress in the auto loan market is concentrated among borrowers with credit scores below 660 and is especially high among people with bottom-of-the-barrel credit. But the stress could spread if the US slips into a recession, as many economists expect. If job losses mount, many more consumers may find themselves unable to maintain the record level of debt incurred in recent years.
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