Car Payment Defaults Hit 29-Year High
Americans are defaulting on their auto loans at levels not seen in a generation as record-high borrowing costs squeeze budgets, according to Fitch Ratings data cited by Fox Business on October 24.
The percentage of subprime auto borrowers at least 60 days behind on their auto loans rose to 6.1 percent in September, the highest level since Fitch Ratings began keeping data in 1994. This delinquency rate can be attributed to the Federal Reserve’s decision to hike interest rates to a 22-year high, between 5.25 and 5.5 percent.
In the second quarter of 2023, the average monthly car payment in the United States was $729 for new vehicles and $528 for used vehicles. Most people simply cannot afford payments that large.
Ripple effects: Cox Automotive estimated that 1.5 million vehicles will be repossessed this year, up from 1.2 million last year. These figures are below pre-pandemic levels but could still help push the nation into recession in 2024.
A spike in household debt usually signals looming economic recession: Consumers are unable to spend or invest once they have burned through their savings and gone delinquent on their loans.
Bad budgeting: The median household income in the U.S. is $74,580. Most financial advisers recommend spending no more than 15 percent of take-home pay on transportation (gasoline, vehicle repairs and auto insurance included). This means a huge share of American families are overspending on car payments. To avoid repossession or bankruptcy, they need to drive something cheaper than what they currently drive.
Prophecy says: Good budgeting is important because America’s economic problems are prophesied to get much worse. The Prophet Haggai describes current and future economic conditions: “Ye have sown much, and bring in little; ye eat, but ye have not enough; ye drink, but ye are not filled with drink; ye clothe you, but there is none warm; and he that earneth wages earneth wages to put it into a bag with holes” (Haggai 1:6).