The $1.7 trillion auto loan market heads for a crash
SPY•US drivers are taking on larger payments and longer auto loans as vehicle prices remain high, raising risks for borrowers and investors in a $1.7 trillion loan market. Subprime auto-loan delinquencies backing asset-backed securities have reached around 6%, a historic high.
1. Longer loans, older cars
High vehicle prices and borrowing costs are pushing US drivers toward older cars and loans lasting as long as eight years. The average monthly payment on new-car loans rose to $765 by the middle of this year, from $550 in mid-2019, while used-car loans have lengthened to an average of 67.9 months from 64.7 months.
2. Borrowers owe more
For used-car buyers with negative equity in 2026, the average amount borrowed exceeded the car’s value by $5,114, up from $3,774 at the start of 2020. More than 30% of subprime loans originated in the first half of this year are not scheduled to be paid off until the cars are more than 12 years old, compared with 7% at the end of 2019.
3. Risks for loan investors
Auto loans total $1.7 trillion, and $127 billion of auto-loan securities were issued last year. Fitch Ratings’ measure of subprime auto loans backing asset-backed securities that are at least 60 days past due is around 6%, a historic high. The article says rising maintenance costs and aging vehicles could leave borrowers less willing to keep paying loans on cars that no longer run reliably.
