Thinking of Taking Out an Auto Loan? Here’s Why It May Be Harder to Do So

Losses on U.S. subprime auto loans are at the highest level since the 2008 market meltdown.


More and more Americans have stopped paying their auto loans or are falling behind on payments, a trend which could affect the U.S. economy.

According to S&P data released Thursday, losses on subprime auto loans hit 9.1 percent in January of this year compared to 7.9 percent in January 2016. The loss is a signal to investors that auto loans are becoming increasingly risky. In fact, subprime auto lenders are losing money at the highest rate since the 2008 market meltdown, according to Bloomberg.

Recoveries on subprime auto loans are also at their lowest point in seven years at just 34.8 percent, Business Insider reported.

Additionally, only a third of subprime loans are being covered by traditional lenders. Subprime loans are typically issued to customers with low credit or other risk factors at a rate above prime.

Related: 7 Crucial Things You Need to Apply for a Car Loan

There is concern that these losses could mean higher borrowing costs for customers and fewer car sales overall. The American auto industry set annual sales records for the past two years. In 2016, U.S. automakers sold 17.6 million vehicles, a 0.4 increase over 2015.

Borrowing rates are also set to increase over the next year and beyond. On Wednesday, the Federal Reserve hiked interest rates from 0.75 percent to 1 percent. The Fed also signaled that two additional hikes will likely occur this year, however, experts say the increase likely won’t affect auto financing rates in the short term.

Next: 37 Cars You Can Own for Under $300 a Month

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GOBankingRates Staff

These articles are written by the in-house GOBankingRates team.

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