2025 Auto Loan Delinquencies and Defaults Surge: How Borrowers Can Protect Themselves

After dropping to historic lows during the first few years of COVID-19, auto loan delinquencies have now surpassed pre-pandemic levels, meaning borrowers are increasingly taking hits to their credit reports—and are more at risk than ever of losing their vehicles.

Below, we’ll review why it’s becoming harder to keep up with car loan payments and what you can do to ensure you don’t fall behind.

Table of Contents

1. Why are auto loan delinquencies on the rise?
2. Delinquency vs. default
3. How to avoid delinquency and default
4. What to do if you miss a car payment
5. What to do if you’re about to default on a car loan

Why are auto loan delinquencies on the rise?

In September 2024, the Federal Reserve reported that auto loan delinquencies surpassed pre-pandemic levels, nearing the historic highs of the Great Recession in the late 2000s. As of the first quarter of 2025, nearly 5% of auto loans are delinquent.

Almost all delinquencies (loans with past-due payments) come from borrowers with subprime (580 to 619) or near-prime credit (620 to 659) credit scores. This makes sense: The Federal Reserve found a moderate correlation between income and credit score. In short, borrowers with poor credit scores are statistically more likely to struggle with a monthly car payment (and are less likely to have emergency savings to draw from).

But why is the rate of auto delinquencies particularly high in 2025? We can trace the issue to a few major market trends.

Higher car prices

The average cost of a car has skyrocketed in recent years. At the start of 2025, Kelley Blue Book reported that the average price of a used car hit $25,565. Even worse? The average price of a new car reached nearly $50,000.

These higher prices mean higher monthly payments. Near-prime, subprime, and deep subprime borrowers pay an average of more than $500 a month on used car loans and more than $700 a month on new car loans.

Credit profile	Average new car payment	Average used car payment
Near-prime	$775	$530
Subprime	$759	$539
Deep subprime	$727	$538

Borrowers across credit profiles are spending more on cars, resulting in higher monthly payments. In 2024, Edmunds reported that 17.4% of new-vehicle buyers left the lot with a $1,000+ monthly payment.

Prices could surge more this year. Experts predict that President Trump’s tariffs could result in price hikes of $3,000 to $10,000 for new cars, which will in turn increase demand (and prices) for used vehicles.

Higher interest rates

Interest rates are also on the rise; borrowers with poor credit are the most harmed by higher auto loan rates. The table below shows the average interest rates of borrowers without good credit on new and used car loans.

Credit profile	Average new car interest rate	Average used car interest rate
Near-prime	9.73%	14.07%
Subprime	13.00%	18.95%
Deep subprime	15.43%	21.55%

Borrowers with deep subprime credit are most notably affected. While they pay 21.55% interest on used car loans, borrowers with excellent credit only pay 7.41%. That’s right: A poor-credit borrower’s interest rate is 3 times higher than a borrower with excellent credit.

Let’s look at the discrepancy in real dollars using some basic auto loan calculations. Assume a $25,565 used car, with no down payment, financed for 60 months. Here are the monthly payments for a borrower with excellent credit vs. poor credit:

• Excellent credit: $511 a month

• Poor credit: $700 a month

As you’d expect, it’s much easier to default on a $700 monthly payment than a $511 payment.

Inflation

Everywhere you look, prices have gone up: grocery stores, doctor’s offices, gas stations, apartment complexes, you name it. The Bureau of Labor Statistics’ Consumer Price Indexes from 2025 vs. 2020 show that costs have increased an average of 23.6% in the last five years.

That means low-income borrowers who were struggling to make ends meet before the pandemic have an even tougher time now. Managing a monthly car payment feels impossible when you can barely afford to put food on the table.

Car insurance costs

Inflation has been particularly hard on car insurance costs. Based on the same Consumer Price Index data (2025 vs. 2020), car insurance premiums have increased 54.4% in the last five years.

Even more troubling: A recent report by The Zebra found that drivers with poor credit pay nearly three times more for car insurance than those with exceptional credit.

More consumer debt

Another reason borrowers are more likely to fall behind on car payments? The average debt per person is growing—total household debt in the United States increased by $167 billion in the first quarter of 2025. What does that mean? Americans have more and more debt to juggle, which could increase the likelihood of missing a payment.

Auto loan delinquency vs. default

Auto loan delinquencies and defaults can damage your credit and even result in the loss of your vehicle. But they’re not the same thing:

• An auto loan delinquency happens when a borrower misses a payment, even by one day. Lenders may report your loan as delinquent if you don’t make your payment within 30 days past the due date, though your lender might have a stricter or more relaxed timeline.
• An auto loan default refers to when a borrower fails to make a payment after an extended period, often 90 days or more (but sometimes shorter). An auto loan default carries more serious consequences.

Risks of auto loan delinquency

If you’re delinquent on your auto loan, you can face several consequences:

• Damage to credit score: If you don’t get caught up on your payments within a certain time (often 30 days), your lender may report your delinquent payment to the credit bureaus, which can lower your credit score.
• Late fees: Lenders may charge late fees if you miss a payment, even by a day. 
• Risk of default: When you’re 30 or 60 days delinquent, you need to find the cash to cover two or three car payments—all at once. If you can’t get caught up, you risk defaulting on your car loan, which carries far worse ramifications.

Risks of auto loan default

Defaulting on your auto loan can be detrimental for several reasons:

• Vehicle repossession: If you default on your car loan, the lender can repossess your vehicle. You won’t recoup any of the money you’ve paid into the car, and you’ll need to find a new mode of transportation.
• Collections and legal action: Lenders can also take legal action against you, which could result in wage garnishment to cover your past-due payments.
• Greater damage to your credit score: A default on your credit report results in an even steeper drop in your score, and it remains on your report for seven years, making it more challenging to get approved for another car loan.

How to avoid auto loan delinquency and default

Here are ways to buy a car while minimizing the risk of loan delinquency and default:

Find ways to finance less

Buy a car on an extremely tight budget, even if you can afford more:

• Pay cash for a used car so you don’t have to finance.
• Consider a Certified Pre-Owned (CPO) from a dealership, instead of a brand-new vehicle.
• Buy a used car from a private seller instead of a used car lot; prices are usually lower.
• Buy a retired vehicle from a company fleet or rental company.
• Stick to economy cars and basic trims.
• Buy at the end of the month, quarter, or year, when salespeople are more desperate to make deals and hit their sales quotas.

Wait until your credit improves

If your current credit score means you’ll get stuck with a high interest rate, focus on improving your credit score for the next six to 12 months, then apply for a car loan.

Get a side gig

Adding a second income stream makes it easier to afford your monthly car payment. If you get a side hustle that involves your vehicle, such as rideshare driving or food delivery, you can write off your car payment and insurance on your taxes.

Cut discretionary spending

Streaming services, dining out, and gym memberships are nice, but if you’re at risk of losing your vehicle, get rid of these expenses—you need to save every cent you can.

What to do if you miss a car payment

If you miss a car payment, do whatever you can to get caught up before your lender reports the delinquency to the credit bureaus. Often, you’ll have 30 days to get caught up, but it varies by lender. Here are some ways to catch up fast:

• Dip into your emergency fund, if you have one. That’s what it’s there for!
• Ask a friend or family member if they can spot you the cash, but make a solid plan to repay them right away.
• Use one of these best cash advance apps to get money fast, but make sure you understand the risks involved.

When in doubt, contact your lender to see what kind of relief it can offer.

What to do if you are about to default on a car loan

Here’s what to do if you can’t make your car payments and are at risk of defaulting:

• Contact your lender to discuss alternative payment options, like temporarily lower payments.
• See whether you can refinance your car loan to a longer term or lower interest rate (or both), to lower your monthly payment. Check out our top picks for the best auto loan refinance companies. RateGenius is the top-rated—it’s an online quote service that can help you compare offers.
• Sell your car and use the proceeds to pay off the loan.