Are $1,000 Car Payments the New Normal?

One of the pistons in the U.S. economy — auto lending — is starting to misfire.

While Wall Street cheers strong economic data and the stock market maintains its climb, cracks are forming in the consumer finance landscape, particularly among subprime auto borrowers. A closer look under the hood of the car loan market reveals a story of financial strain, rising delinquencies, and potential risk lurking just beyond the shiny surface of dealership lots.

🔧 The Pandemic Effect: Fewer Deals, Bigger Loans

The seeds of today’s trouble were planted during the pandemic. Supply chain disruptions and production cuts led to fewer new cars on the lot, sending vehicle prices soaring. Incentives and rebates from automakers dried up. To make car purchases work, many consumers — especially lower-income buyers — turned to used vehicles and stretched their loans over longer terms.

And now, the cracks are widening.

Recent data shows that delinquencies on subprime auto loans (borrowers with credit scores typically below 620) have surged. According to Fitch Ratings, more than 6% of subprime auto loans are now 60 days or more past due — the highest rate on record.

Meanwhile, J.D. Power reports that nearly 14% of new car buyers in September had credit scores under 650, the highest share for that month since 2016. At the same time, vehicle repossessions are climbing again, reaching 1.73 million in 2024 — a level not seen since the aftermath of the 2008 financial crisis.

💸 The Pain Point: Affordability

Car prices haven’t come down meaningfully. The average new car payment is now over $750 per month, and nearly 20% of auto loans and leases carry monthly payments over $1,000. For many Americans, particularly those with stagnating wages or working unstable jobs, that’s simply unaffordable.

As Joelle Scally from the Federal Reserve Bank of New York explains, “These are borrowers who may have stretched their budgets to afford a higher price of the asset, as well as a higher payment because of the interest rate.”

That stretch is showing. And as unemployment ticks upward, the strain only increases.

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📉 Subprime Risk in Focus

The stress in the subprime segment hit a high-profile flashpoint recently: Tricolor Holdings, a lender that focused on borrowers with limited or no credit history — including many undocumented immigrants — filed for bankruptcy. The firm held over 100,000 active auto loans and now faces serious allegations of fraud.

While analysts say Tricolor may be an outlier, it does highlight the fragility of lending practices that serve the most vulnerable consumers. And it's not just about one lender. The broader trend points to systemic stress — and a consumer class teetering on the edge of financial overextension.

At Consumer Portfolio Services, another subprime-focused lender, repossessions on loans have more than doubled since 2022, reaching $98 million in Q2 2025.

🏦 Wall Street's Calculated Risk

Despite all this, Wall Street isn't panicking — at least not yet.

Investors continue to buy up bonds backed by subprime auto loans, and the yields being demanded remain relatively low. Why? Because underwriting standards have tightened since the early pandemic era. Plus, the overall size of subprime loans is still a small portion of total auto lending portfolios.

According to analysts like Theresa O’Neill at Bank of America, investors are betting that the worst of the stress is already behind us. But that may be a risky assumption, especially if unemployment continues to rise or inflation re-accelerates.

🚙 Automakers Caught Between Volume and Profit

Auto companies are in a bind. Executives publicly talk about affordability, but their actions still lean toward profitability. Big trucks and luxury SUVs — the most profitable vehicles — remain the stars of the show.

Ford, for example, recently announced targeted interest rate reductions for lower-credit buyers to move excess inventory of its F-150 trucks. While it claims only 3%–4% of its loan book falls into the high-risk category, the trend is clear: automakers are again nudging credit risk boundaries to keep sales flowing.

General Motors, meanwhile, reported that 12% of its 2025 loans were to borrowers with credit scores below 620.

🔍 What This Means for Fintech and Lending

For fintechs operating in the lending space, especially those offering auto-related financing or embedded finance products, this data serves as a red flag. Consumer demand may remain stable, but risk profiles are shifting — and rapidly. The focus needs to be on smarter underwriting, adaptive risk modeling, and greater transparency with both borrowers and investors.

If this stress spills over, it may not only impact auto loans — it could also signal tightening conditions in broader consumer credit markets, from buy-now-pay-later products to personal loans and even credit cards.

🚦Final Thoughts: Watch This Lane

Rising delinquencies, soaring car payments, and longer loan terms aren’t just auto industry issues — they’re economic warning signals. While the broader economy may still be firing on most cylinders, the auto finance sector is idling in rough gear.

For investors, lenders, and fintech innovators alike, this is a lane worth watching closely. Because if enough engines stall, the whole machine slows down.