Guest Post by Martin Armstrong
Americans are falling behind on their car payments at levels not seen in nearly a decade, and the situation is becoming increasingly alarming. According to new research from LoanTape, 17.68% of subprime auto loan balances in the securitized pools it examined were at least 30 days delinquent in September 2026, the highest September reading in its dataset dating back to 2017. Another 7% were at least 60 days overdue, compared with 3.43% in September 2019. That means serious delinquencies in this segment have more than doubled from their pre-pandemic level.
The automobile has become another casualty of pandemic-era inflation. The average transaction price of a new vehicle surpassed $50,000 in September 2025, according to Kelley Blue Book. Americans are financing cars over six, seven, and even eight years simply to make the monthly payment appear affordable. That does nothing to reduce the actual cost. It merely stretches the debt over a longer period while the borrower continues paying interest on a depreciating asset. We have reached the absurd point where an ordinary family vehicle can cost more than some Americans earn in an entire year. Add insurance, maintenance, registration, fuel, and financing charges, and transportation has become an enormous financial burden.
The Federal Reserve has already identified the underlying problem. Its own research found that average required monthly auto payments increased from approximately $470 in January 2020 to $600 by January 2023. That was an increase of nearly 28% in just three years. The Fed concluded that larger loan amounts, driven by rising vehicle prices, were a major contributor to the increase in delinquencies. Yet the political establishment continues to obsess over whether inflation is rising by 2% or 3% annually, ignoring the fact that consumers are paying those additional increases on top of the enormous price increases already accumulated since 2020. Prices do not magically return to their former levels simply because the annual rate of inflation declines.
The latest figures reveal that financial distress is spreading across lenders rather than remaining confined to one poorly managed institution. Delinquency rates increased at 10 of the 12 major subprime issuers examined by LoanTape. The headline increase is partly explained by the aging of the loans in the sample, but even after adjusting for differences in lenders and loan age, the delinquency rate deteriorated. These figures apply specifically to the securitized subprime loans examined, not to every automobile borrower in America. Nevertheless, the broader Federal Reserve data also show serious financial strain. The Philadelphia Fed reported that subprime borrowers represented only 17% of active auto loan accounts but accounted for nearly two-thirds of delinquent loans in its analysis.
The poorest half of American households by wealth held approximately 51.6% of consumer credit in the second quarter of 2026, according to Federal Reserve distribution data cited in the report. These are the households least capable of absorbing another financial shock. Meanwhile, the University of Michigan’s consumer sentiment index fell to 48.1, reflecting the growing pessimism among Americans who see their purchasing power deteriorating. The unemployment rate reached 4.2% in September. Even a modest deterioration in employment can push a household already struggling with a $600 or $800 car payment into default.
Auto loans are secured by assets that depreciate, often rapidly. When a borrower defaults, the lender repossesses the vehicle and attempts to recover the outstanding balance through resale. If repossessions increase, additional used vehicles enter the market, potentially depressing prices and reducing the amount lenders can recover. A borrower who financed an overpriced vehicle with little money down may owe substantially more than the car is worth. The lender suffers a loss, the borrower’s credit is damaged, and the individual may lose the transportation necessary to maintain employment.
This also affects the automobile industry itself. As defaults rise, lenders become more selective, demand larger down payments, and charge higher rates to compensate for risk. Fewer consumers qualify for financing, which reduces demand for new and used vehicles. Dealers begin struggling with inventory, manufacturers face weaker sales, and suppliers experience declining orders. The automobile industry has historically been an important indicator of economic conditions because it depends upon consumer confidence, available credit, and expectations of future income. When households are unwilling or unable to assume additional debt, the weakness eventually reaches the broader economy.
The most troubling aspect is that this deterioration has occurred without a severe nationwide recession. Subprime borrowers are already experiencing delinquency levels comparable to, or worse than, those seen during previous periods of significant economic stress. What happens if unemployment rises further? What happens when consumers who have exhausted their credit cards can no longer refinance or extend their obligations? The weakness in the automobile market is revealing how little financial flexibility remains among lower-income households.
America has built an economy increasingly dependent upon consumer borrowing to maintain living standards that wages alone can no longer support. The automobile market is exposing the consequences. People are financing depreciating assets for nearly a decade, paying inflated prices, and sacrificing an ever-larger portion of their income simply to remain employed. When even the car payment becomes impossible to maintain, we are witnessing something far more serious than an isolated problem in subprime lending. We are watching the erosion of the American consumer’s financial foundation, and no amount of political rhetoric can conceal what is happening to household finances.
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[ H/T The Burning Platform ]
Americans are falling behind on their car payments at levels not seen in nearly a decade, and the situation is becoming increasingly alarming. According to new research from LoanTape, 17.68% of subprime auto loan balances in the securitized pools it examined were at least 30 days delinquent in September 2026, the highest September reading in its dataset dating back to 2017. Another 7% were at least 60 days overdue, compared with 3.43% in September 2019. That means serious delinquencies in this segment have more than doubled from their pre-pandemic level.
The automobile has become another casualty of pandemic-era inflation. The average transaction price of a new vehicle surpassed $50,000 in September 2025, according to Kelley Blue Book. Americans are financing cars over six, seven, and even eight years simply to make the monthly payment appear affordable. That does nothing to reduce the actual cost. It merely stretches the debt over a longer period while the borrower continues paying interest on a depreciating asset. We have reached the absurd point where an ordinary family vehicle can cost more than some Americans earn in an entire year. Add insurance, maintenance, registration, fuel, and financing charges, and transportation has become an enormous financial burden.
The Federal Reserve has already identified the underlying problem. Its own research found that average required monthly auto payments increased from approximately $470 in January 2020 to $600 by January 2023. That was an increase of nearly 28% in just three years. The Fed concluded that larger loan amounts, driven by rising vehicle prices, were a major contributor to the increase in delinquencies. Yet the political establishment continues to obsess over whether inflation is rising by 2% or 3% annually, ignoring the fact that consumers are paying those additional increases on top of the enormous price increases already accumulated since 2020. Prices do not magically return to their former levels simply because the annual rate of inflation declines.
The latest figures reveal that financial distress is spreading across lenders rather than remaining confined to one poorly managed institution. Delinquency rates increased at 10 of the 12 major subprime issuers examined by LoanTape. The headline increase is partly explained by the aging of the loans in the sample, but even after adjusting for differences in lenders and loan age, the delinquency rate deteriorated. These figures apply specifically to the securitized subprime loans examined, not to every automobile borrower in America. Nevertheless, the broader Federal Reserve data also show serious financial strain. The Philadelphia Fed reported that subprime borrowers represented only 17% of active auto loan accounts but accounted for nearly two-thirds of delinquent loans in its analysis.
The poorest half of American households by wealth held approximately 51.6% of consumer credit in the second quarter of 2026, according to Federal Reserve distribution data cited in the report. These are the households least capable of absorbing another financial shock. Meanwhile, the University of Michigan’s consumer sentiment index fell to 48.1, reflecting the growing pessimism among Americans who see their purchasing power deteriorating. The unemployment rate reached 4.2% in September. Even a modest deterioration in employment can push a household already struggling with a $600 or $800 car payment into default.
Auto loans are secured by assets that depreciate, often rapidly. When a borrower defaults, the lender repossesses the vehicle and attempts to recover the outstanding balance through resale. If repossessions increase, additional used vehicles enter the market, potentially depressing prices and reducing the amount lenders can recover. A borrower who financed an overpriced vehicle with little money down may owe substantially more than the car is worth. The lender suffers a loss, the borrower’s credit is damaged, and the individual may lose the transportation necessary to maintain employment.
This also affects the automobile industry itself. As defaults rise, lenders become more selective, demand larger down payments, and charge higher rates to compensate for risk. Fewer consumers qualify for financing, which reduces demand for new and used vehicles. Dealers begin struggling with inventory, manufacturers face weaker sales, and suppliers experience declining orders. The automobile industry has historically been an important indicator of economic conditions because it depends upon consumer confidence, available credit, and expectations of future income. When households are unwilling or unable to assume additional debt, the weakness eventually reaches the broader economy.
The most troubling aspect is that this deterioration has occurred without a severe nationwide recession. Subprime borrowers are already experiencing delinquency levels comparable to, or worse than, those seen during previous periods of significant economic stress. What happens if unemployment rises further? What happens when consumers who have exhausted their credit cards can no longer refinance or extend their obligations? The weakness in the automobile market is revealing how little financial flexibility remains among lower-income households.
America has built an economy increasingly dependent upon consumer borrowing to maintain living standards that wages alone can no longer support. The automobile market is exposing the consequences. People are financing depreciating assets for nearly a decade, paying inflated prices, and sacrificing an ever-larger portion of their income simply to remain employed. When even the car payment becomes impossible to maintain, we are witnessing something far more serious than an isolated problem in subprime lending. We are watching the erosion of the American consumer’s financial foundation, and no amount of political rhetoric can conceal what is happening to household finances.
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Continue reading...
[ H/T The Burning Platform ]
