Car payments are rising at a pace that is increasingly straining household budgets. Surging vehicle prices combined with higher interest rates have pushed monthly auto loan payments into territory that was once considered extreme for the average buyer.
According to the latest Experian State of the Automotive Finance Market report, roughly 19% of new-vehicle loan payments now exceed $1,000 per month. This comes on the heels of a recent report showing that nearly one in five car buyers carries a four-figure monthly payment.
New research suggests these rising costs may catch up with borrowers several years after they drive off the lot. A LendingTree analysis of approximately 162,000 anonymized credit reports found that 1.99% of consumers with active auto loans have a default on record.
Defaults Tend to Appear Years After Purchase
While the overall default rate may appear modest, the timing of these defaults provides insight into modern car financing dynamics. LendingTree found that defaults are uncommon in the first year of a loan, representing just 8.7% of cases.
The largest share of defaults—36.7%—occurs between the second and fourth years of the loan. Analysts say this delayed pattern reflects the realities of modern car ownership: initial excitement, warranties, and manageable monthly payments can mask long-term financial strain. As vehicles age, repair costs accumulate and life events such as job changes or medical expenses can push borrowers beyond their budget.
Long-Term Loans Increase Default Risk
The structure of contemporary auto loans also contributes to default risk. LendingTree data shows that borrowers who defaulted typically had an original loan amount of $24,223 with monthly payments of around $540.
Defaults generally occurred about 42 months into loans averaging 69 months in length, with nearly 62% of defaulted loans originally set at 72 months or longer. Extended loan terms, popular as a way to keep monthly payments manageable amid rising vehicle prices, can leave borrowers in debt long after their cars begin to age.
Defaults Concentrated Among Low Credit Scores
Auto loan defaults are heavily concentrated among borrowers with lower credit scores. LendingTree reports that 83.7% of defaults occurred among consumers with scores below 580, placing them in the deep subprime category. The average credit score among defaulted borrowers was 529.
Subprime borrowers often face significantly higher interest rates, which can drive monthly payments higher even on modest loan amounts, increasing the risk of default as financial circumstances evolve.
As vehicle costs and financing terms continue to climb, analysts warn that more borrowers may face the long-term financial pressures that can turn manageable payments into serious household strains.
