Rising Auto Loan Delinquencies: A Sign of Consumer Financial Strain

More Americans are falling behind on their car payments than at any point in the last 15 years, signaling growing financial pressure on households. This trend, fueled by rising vehicle prices and varying credit eligibility, is raising concerns about the broader economic impact.

The Surge in Delinquencies

The auto loan delinquency rate reached 3.88% in the third quarter of 2025, according to Federal Reserve economists Bankrate. This is up from 3.83% in the second quarter and approximately 1.5 times higher than the rate in mid-2021. The rate represents balances at least 30 days past due and doesn’t include accounts already charged off by lenders, meaning the actual delinquency rate is likely even higher.

Specifically, 15.78% of subprime auto loans – those issued to borrowers with credit scores below 620 – were at least 30 days delinquent as of September 2025 Bankrate. Trading Economics reports the overall car loan delinquency rate at 6.90 percent.

Factors Contributing to the Rise

Several factors are contributing to the increase in auto loan delinquencies:

• Rising Car Prices: Supply chain issues during the pandemic drove up the prices of both new and used vehicles, forcing borrowers to take on larger loans.
• Subprime Lending: Borrowers with lower credit scores continue to face high interest rates. The average auto loan APR for borrowers with credit scores below 600 hovers around 20%, similar to credit card rates Bankrate.
• Economic Pressures: Inflation is straining household budgets, making it more hard for consumers to keep up with car payments, insurance, gas, and other essential expenses Bankrate.

Predatory Lending Practices

Concerns are growing about predatory lending practices, particularly by “buy here, pay here” used car lots. These lenders often offer financing to consumers with poor credit, but at significantly higher interest rates and less favorable terms.

One example involves Torry Holmesly, who financed a 2020 Chevy Equinox through DriveTime and its financing partner, Bridgecrest. She agreed to a 20% APR on a loan amount exceeding the car’s worth, with add-ons inflating the total cost. Despite making on-time payments, she found herself “upside down” on the loan.

Dealers may engage in tactics such as:

• Interest-rate markup: Charging a higher interest rate than the “buy rate” offered by financing entities and pocketing the difference.
• Interest-rate disguising: Inflating the car’s price to conceal financing costs.

The Role of “Buy Here, Pay Here” Lots

“Buy here, pay here” (BHPH) lots emphasize guaranteed financing, regardless of credit or income. They often feature older vehicles, frequent payment schedules, and higher interest rates. DriveTime and Bridgecrest function as a “buy here, pay here” lender, as they are both owned by DriveTime Automotive Group, Inc.

What Consumers Can Do

Experts recommend the following steps to avoid predatory auto loans:

• Shop for financing: Secure outside financing from banks, credit unions, or online lenders before visiting a dealership.
• Research vehicle prices: Use resources like Kelley Blue Book to determine a fair market value for the car.
• Avoid unnecessary add-ons: Carefully review the loan agreement and question any add-ons that seem unnecessary.
• Produce a substantial down payment: Aim for a down payment of at least 10-20%.
• Understand the APR: Ensure you fully understand the annual percentage rate (APR) and the total cost of the loan.

Looking Ahead

The rise in auto loan delinquencies is a concerning trend that could signal broader economic challenges, particularly if the labor market weakens. Increased regulation and consumer education are crucial to protect borrowers from predatory lending practices and ensure a more sustainable auto finance market.