Americans are struggling to keep up with their car payments at the highest rate in decades, as the economy shows signs of tightening following more than a year of counter inflationary measures.
Some 6.11 percent of subprime borrowers — who typically have lower credit scores and face higher interest rates — were more than 60 days past due on their auto loans in September, according to Fitch Ratings.
This marks the highest delinquency rate in Fitch’s data, which spans nearly three decades from 1994 to the present. The previous high on record occurred in October 1996, when 60-day delinquency among subprime borrowers rose to 5.96 percent.
Earlier this year, the delinquency rate inched towards that record, reaching 5.93 percent in January, before falling to 4.67 percent in April.
Borrowing costs for car owners have ticked upward over the last two years, as the Federal Reserve has repeatedly hiked interest rates in an effort to rein in stubbornly high inflation.
However, the central bank has attempted to strike a careful balance with the rate hikes to sufficiently slow rising prices without slowing the economy into a recession.
Average interest rates for borrowers with the highest credit scores sat at 5.07 percent for new cars and 7.09 percent for used cars in the second quarter of 2023, according to an Experian report.
Those with the lowest credit scores saw average rates of 14.18 percent for new cars and 21.38 percent for used cars during the same period.
Bill Gross, a legendary investor and co-founder of Pacific Investment Management Co. (PIMCO), cited the recent rise in auto loan delinquencies rate in predicting that the US would face a recession in the fourth quarter.
“Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate US economy slowing significantly. Recession in 4th quarter,” Gross wrote on X, the platform formerly known as Twitter.