Modern cars cost more than they ever have. In many cases, buying a brand-new car means taking a loan for around $50,000. Prices have been rising for decades, of course, but have seen a substantial rise in the last 5-10 years.
This is having a significant impact on borrowers. When specifically looking at subprime borrowers, some studies have found that their default rates are now 6.65%. This refers to those who are 60 days or more behind on making the appropriate auto payments. It is notable because studies claim that it is the highest rate in decades, and defaults have not come close to that number since the 1990s.
Could this indicate other financial issues are coming?
One potential problem that this also demonstrates is that people may begin defaulting on other loans and financial obligations.
Cars are incredibly important and even necessary for many people’s lives. Parents use them to transport children to school, to go to work, to visit family members, to get medical care and for much more. Because of the importance of cars in modern society, people will often do everything in their power to make their car payments for as long as possible.
So if people are defaulting on car payments in record numbers, it indicates that there is significant financial pressure on a high number of borrowers. That could begin turning into other types of defaults, such as foreclosures, small businesses missing payments and much more.
For lenders, it can be complex to determine how to collect the money that they are due when borrowers are struggling. It can help to work with an experienced law firm to look into all viable options.