Busy Post-Tax Season? Buckle Up!
Due to high inflation, a cooling job market, and other obstacles, millions of Americans are falling behind on car payments more frequently than ever before. Sadly, this results in an increase in the number of auto repossessions, which is expected to continue.
According to Bloomberg, the number of subprime auto borrowers who were behind on their payments for at least 60 days increased by 5.67 percent in December, up from a seven-year low of 2.58 percent in April 2021.
To put things into perspective, in January 2009, when the Great Recession was at its height, the rate was 5.04 percent. Simply put, it is becoming increasingly difficult to make those monthly payments because of the high interest rates.
The average new car loan rate in December 2022 was 8.0%, up from 5.15 percent the previous year. The interest rate is typically higher for subprime borrowers. After falling behind on their payments, one interviewee had their 2013 Dodge Journey repossessed. His automobile’s monthly payment, including insurance, exceeded $1,000.
Why is it so ridiculously high? due to an equally insane interest rate of 26%.
If this person manages to save enough money to get the old crossover back, there is also the $1,100 fee for repossession. A major obstacle: They were fired because they didn’t have a car to drive to work, so they are unemployed. Even though all of that sounds awful, repossession rates today are lower than they were before the pandemic.
Manheim, a company that conducts auto auctions, reported: In 2022, the number of repossessed automobiles increased by 11% over the previous year, but this was still 26% less than in 2019.” It’s also important to remember that in many states, a lender can take back a car the first time it’s not paid, even if it takes up to three payments. Additionally, the borrower’s credit score may be impacted for approximately seven years after that vehicle is seized.
The main issue here is affordability. Cox Automotive, a company that studies and collects data on the automobile industry, says there is no immediate solution. The fact that used car prices are finally returning to normal after reaching record highs is one encouraging sign.
Buckle Up! It is likely that auto repossession rates will rise in the coming months.