‘Inflation has Really Taken a Toll on People’: Americans Fall Behind on Car Payments at Higher Rate Than in 2009

By Claire Ballentine

Losing his car was just the beginning.

When 21-year-old Kobe Hatch walked outside his Chicago home in December and couldn’t find his 2013 Dodge Journey, he knew it had been repossessed. He’d been falling behind on payments for months. 

Without a car, he couldn’t do his job as a delivery driver for Amazon and got fired. Now, he’s struggling to make his rent payments and can’t afford groceries, even with food stamps. 

“It’s been very stressful for the past few months,” he said. “Inflation has really taken a toll on people.”

Hatch is part of a growing cohort of Americans facing auto repossessions, an ominous sign for the US economy. During the pandemic, a surge in used car prices forced buyers to take out bigger loans for their vehicles. The monthly payments seemed doable in an era of stimulus checks, a tight labor market and surging stocks, but that’s changed for many people as inflation eats into their budgets and the job market cools. 

Now, more Americans are falling behind on their car payments than during the financial crisis. In December, the percentage of subprime auto borrowers who were at least 60 days late on their bills rose to 5.67%, up from a seven-year low of 2.58% in April 2021, according to Fitch Ratings. That compares to 5.04% in January 2009, the peak during the Great Recession. 

Higher interest rates are making it even more difficult to make the monthly payments. The average new auto loan rate was 8.02% in December, up from 5.15% a year earlier, according to Cox Automotive. The rate can be much higher for subprime borrowers.

Read more: Wall Street Warns of Trouble Brewing in Auto Loans as Prices Dip

For Hatch, the total monthly bill for his car reached about $1,000, including the cost of insurance, thanks to a whopping 26% interest rate. Even if he can manage to save up enough to get the car back — about $1,100 for the repossession fee — there’s a strong chance he won’t be able to make the payments in subsequent months, especially now that he’s unemployed. 

Affordability Struggles

While the number of vehicle repossessions is rising, it’s still below pre-pandemic levels. At Manheim, an auto auction company, the number of repossessed cars increased 11% in 2022 compared to the prior year, but that was still down 26% from 2019. 

When exactly a lender can repossess a car varies by state, but it can happen in many cases as soon as a borrower is in default — often when a payment is not made on time, according to the Federal Trade Commission. Usually, though, it takes two or three consecutive missed payments for a repossession to happen.

Once the vehicle is seized, the repossession can affect the borrower’s credit score for as long as it stays on the credit report — usually about seven years, according to Experian. 

Credit Hit

Josef Fields in Forth Worth, Texas, fell behind on his car payments and now faces a hit to his credit score. With his monthly bill at $556 for his 2021 Subaru WRX, the 25-year-old was having a hard time figuring out which costs to prioritize. 

He tried to apply for a hardship program through his bank, but it was too late. He woke up to an empty driveway a week before Christmas. 

Now, the repossession and tow fee will cost him $1,600 — about the total sum he owes in back payments as well. He’s trying to save up for another car but it will likely take a while. One positive is that he can walk to his job at the local post office. But whenever he needs to go to the grocery store, he has to ask a friend or take an Uber, which adds even more costs. 

Fields is worried about how this will affect his financial future, especially his dream to buy a house one day. He estimates that the repossession shaved about 40 points off his credit score. 

“When it comes to people my age and younger our credit is still new, so it’s more difficult, and then when stuff like this happens, it screws us over for the long run,” he said. 

Ominous Signal 

Zhea Zarecor in San Antonio is currently trying to negotiate with her lender so her 2013 Honda Fit won’t get repossessed. In the meantime, she’s hiding it. 

The 53-year-old, who is currently in school for her bachelor’s in information technology, splits the monthly bill for the car — about $178 — with her roommate. But then the roommate lost his job, and with prices for groceries and everyday items increasing, there just wasn’t enough for the car payments. 

Zarecor is trying to make extra money with odd jobs like contract secretarial work and participation in medical studies, but it often feels hopeless, she said. 

“Our money doesn’t go as far as it used to,” she said. “I don’t see prices going down, so the only relief I see is when I get my degree.”

More stories like this are available on bloomberg.com