High car prices and inflation are straining household finances, causing more Americans to fall behind on their auto loans.
Early in the pandemic, when the government sent $5 trillion in stimulus money to American households and businesses, auto repossessions decreased. Nonetheless, they have steadily increased as sky-high prices for both old and new automobiles have prompted people to take out larger loans.
High Major Delinquencies
In January, Cox Automotive reported that 2% more vehicle borrowers were at least 60 days behind on their payments compared to December, and 20.4% more than a year ago. Serious delinquencies peaked in 2006.
January loan defaults increased by 6.2% and 33.50% annually. Cox Automotive anticipates 11% more repossessed vehicles in 2022 compared to 2021, although still below pre-crisis levels.
Due to a semiconductor shortage and other COVID-19-related supply chain delays, costs for both pre-owned and brand-new automobiles increased last year. Despite fewer automobiles being manufactured, consumer demand kept prices high.
In 2022, the average cost of a new automobile was approximately $50,000, a record high. The effect of increased interest rates on automobile pricing is negative.
Read more: Amazon employees will soon be able to use their stock holdings as collateral for house loans
Average Rate For Auto Loans
According to Edmunds, an online automotive inventory and information provider, new auto loan rates increased to 6.9% in January from 4.3% a year earlier. As a result of this and rising sticker costs, new car affordability reached its lowest point in 2022, when monthly payments surpassed $1,000.Interest rates have reached a threshold where they inhibit purchasing behavior, Drury added.
In fact, according to data from Edmunds, the proportion of buyers paying at least $1,000 per month for their vehicles reached an all-time high in the final three months of 2022.
Approximately 16% of consumers who financed a new vehicle during the fourth quarter have payments of this magnitude, up from 10.5% one year ago.
Moreover, if more consumers continue to default on their loans, the auto sector faces a greater risk of impending disaster.
Read more: Nissan recalls 800,000 SUVs due to key issues that can cut off the engine
