Auto loan delinquencies are climbing, but not evenly. Wealthier borrowers are finding ways to stay current on their monthly payments. Meanwhile, riskier, lower-income borrowers are falling further behind.
Subprime auto loan delinquencies climbed to 6.65% for borrowers at least 60 days behind on their loan when November started. But early predictions suggest overall delinquency growth could slow substantially by the end of 2026.
The details: VantageScore Chief Economist Rikard Bandebo attributes the rise in delinquencies to several factors:
New and used car prices, which now average around $50,000 and $26,000 respectively.
Borrowers are often "caught off guard" by high interest rates and the costs associated with keeping a car insured and maintained.
And the effects of an auto loan default are more immediate than those of a mortgage default.
The challenges many consumers face are compounded by the fact that 34% of consumers who live paycheck to paycheck and struggle to pay their bills have had to spend more than usual in the past six months, according to Pymnts Intelligence.
What they're saying: "For high-income and middle-income consumers, their late payments, they've actually dropped three of the last four months. But when you look at the lower-income consumers for that same period, their delinquencies have increased," Bandebo said during a CNBC interview.
Why it matters: Rising delinquencies signal a tougher credit environment—more application rejections, tighter lender guidelines, and heavier scrutiny on structure, advance, and payment-to-income ratios.
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Between the lines: Despite the alarming rise in subprime auto loan delinquencies, TransUnion predicts overall delinquencies will level off to 1.54% by the end of 2026, due in part to consumers managing elevated payments by refinancing into longer terms, per a CDG News report.
Refinance volume hit 121,000 transactions totaling $3.8 billion in the third quarter, according to Experian.
Borrowers are securing average rate reductions of 2.08%, saving $77 per month.
Credit unions dominate refinancing with 65% market share, offering the steepest rate cuts.
After refinancing, effective loan terms now average 90.57 months, or about 7.5 years.
Bottom line: As more stretched buyers lean on refinancing and longer terms to stay afloat, dealers should expect slower trade cycles, more negative equity, and a wider gap between high-income and lower-income approval odds.
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