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The U.S. car market faces a perfect storm that is rapidly engulfing ordinary car owners across the country. The clearest warning sign is the rising rate of auto loan borrowers who are falling behind on their monthly payments.
As of January this year, 6.6% of subprime auto borrowers were at least 60 days past due on their loans, according to a report by Fitch Ratings.
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This is the highest rate since Fitch started collecting this data in the early 1990s. And things are not expected to get better. The report says the subprime segment of the auto loan market faces a “deteriorating outlook” for the rest of 2025.
This is especially alarming given the scale of the auto loan market. As of the first quarter of 2025, households carried $1.64 trillion in auto loan debt — surpassing both the $1.18 trillion in credit card debt and the $1.63 trillion in student loan debt, according to Debt.org.
Here’s how cars transformed from symbols of freedom to symbols of unsustainable, toxic debt.
The foundation of today’s crisis was laid five years ago during the pandemic. Supply chain disruptions and factory closures created strange dynamics that pushed car prices higher.
In January 2022, 80% of new car buyers paid more than the manufacturer’s suggested retail price, or MSRP, according to Edmunds. Used car prices were rising faster than new car prices at the time, according to Cox Automotive.
In other words, car buyers paid too much for their cars.
Now, values have declined while many owners have seen a steady rise in interest rates. This shift has pushed many car owners underwater on their purchase.
In fact, one-in-five vehicle trade-ins near the end of last year had negative equity of $10,000 or more, according to Edmunds. The situation is grim, and the outlook is just as bleak.
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While the auto market is dealing with rising interest rates and dropping prices, it’s now also facing the additional challenge of President Donald Trump’s trade war.
About half of U.S. car purchases in 2024 are imports, with many domestic makers relying on foreign parts. The recent 25% tariffs on imported cars could add $6,000 to manufacturing costs for vehicles under $40,000.
With consumers already strained, manufacturers can’t easily pass these costs on and are cutting expenses and jobs. GM and Stellantis have laid off hundreds, and Ford recently cut 350 software jobs, citing efficiency needs.
Buyers should prepare for a tough market ahead.
If you’re looking to buy a new car in this market, it’s probably better to do so before the tariff impact trickles down to the price tag, according to Kelley Blue Book.
However, given where interest rates and prices currently are, try to stick to a tight budget while shopping.
Buying a relatively cheap used car or leasing one if you can find a good deal is probably a good idea.
If you’re a car owner struggling with auto loan debt, consider trading it in for a cheaper model to reduce the burden. If you own multiple cars, it might also be a good time to sell one to reduce your loan exposure.
Refinancing or finding a better auto loan rate is worth considering, too. Over one-in-four Americans owe more on their car loans than the vehicles are worth, according to the Washington Post.
Securing a good refinancing deal now can protect you from future market ups and downs.
You can compare auto loan refinance rates offered by lenders near you through LendingTree.
Here’s how it works: Just answer a few simple questions about yourself and the vehicle you drive — and LendingTree will connect you with two to five lenders from their network of more than 300 lenders.
You may be eligible for refinance loans starting at 3.50% APR, through LendingTree’s network.
The best part? The process is completely free and won’t hurt your credit score.
It’s also important to remember that as car prices increase, insurance premiums typically rise as well. According to ValuePenguin, car insurance rates went up by an average of 16.5% in 2024. Comparing quotes is a smart way to save money on your insurance.
OfficialCarInsurance.com lets you compare quotes from trusted brands, including Progressive, Allstate and GEICO, to make sure you’re getting the best deal.
You can find plans starting as low as $29 per month.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
