Auto Loan Delinquencies Reach Highest Rate Since 2010

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  • Higher car prices are making auto loans more expensive. 
  • As auto loans become pricier, consumers are struggling to keep up.
  • Falling behind on an auto loan could mean sustaining major credit score damage and potentially losing your vehicle.

That's not good news at all.

There's been a pretty substantial shortage of vehicles on the market these last few years. And any time you have a situation where there's not enough supply of a given item to meet consumer demand, its price has a tendency to rise.

The average car price as of late 2022 was close to $45,000 for non-luxury vehicles, according to Kelley Blue Book. And so not surprisingly, auto loans have been on the rise. And equally not surprising is the fact that many consumers are having trouble keeping up with those higher payments. 

Auto loan delinquency rates are climbing

For many Americans, car payments are now more than $1,000 per month. And while a lot of people might have a lower payment to cover, consumers are still struggling.

In a recent tweet, financial expert Graham Stephan said that 9.3% of auto loans extended to people with low credit scores were 30 or more days behind on payments. That's the highest delinquency rate since 2010.

Now, it's not just higher car prices that are making auto loans more expensive. The Federal Reserve has been raising interest rates in an effort to slow the pace of inflation. As such, these days, it costs more money to take out just about any sort of loan, whether it's a personal loan, a home equity loan, or a loan to finance a vehicle purchase.

But expensive auto loan payments can put a strain on your budget. And if you fall behind on your auto loan payments, the consequences can be quite severe.

When you can't keep up with your car payments

Any time you fall behind on loan payments, you risk being reported as delinquent to the credit bureaus. And once that happens, your credit score could take a large hit. 

From there, it could become more difficult to borrow money when you need to do so. And even if you do manage to get approved for a loan, you might get stuck with an exorbitantly high interest rate on it. 

What’s more, if you fall too far behind on your auto loan payments, you could risk having your vehicle repossessed. That could, in turn, compromise your ability to hold down a job, thereby propelling you into a very unfavorable financial cycle. 

It's best to get ahead of a situation where you can't pay your car loan. If that's the case, reach out to your lender and see if there's an arrangement that can be worked out. 

In some cases, if you can prove that a temporary hardship has had an impact on your finances, you may get the option to pause your loan payments, or make lower payments for a period of time. It always pays to see what options are available to you. 

If your lender isn't able to work with you, one thing you may need to do is sell your car and purchase a replacement vehicle that's a lot less expensive. You may even need to get creative and see if you can go without a vehicle for a while if your financial situation has taken a turn for the worse and there's really no car out there you can afford. That could mean taking the bus to work, despite it being less convenient, or turning to your social network and asking for help with rides for a few months.

Falling behind on an auto loan isn't a good thing. A good way to avoid that fate is to try to make sure you're buying a car you can afford in the first place. But if you're already in a situation where you're struggling to keep up with your auto loan, do your best to talk to your lender before you reach the point where you've missed a payment.

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