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Repos Rising Again As Subprime Auto Loans Put Owners Way Behind

With cost of living increases cutting into already-tight budgets, high-interest car loans are some of the first to go.
Paul Chinn/The San Francisco Chronicle via Getty Images

It’s a bad sign for the economy when the tow-truck business spikes. That’s what we’re seeing now, as a Bloomberg report details the recent drastic increase in auto repossessions. Not only is it a stark contrast to the COVID pandemic’s peak, when financial relief helped more Americans stay ahead on their car loans, but some stats show it’s even more dire than during the 2009 financial crisis.

Bloomberg cites data from Fitch Ratings saying that 5.3% of subprime auto borrowers are 60 days late or more on their payments. Compare that to May 2021, when that number reached a seven-year low of 2.58%. These numbers show that high-APR loans are becoming a much bigger problem for drivers than when they initially signed for them.

Not all statistics support 2022 as the worst year in recent history for repossessions. Cox Automotive estimates that back in 2009, repos totaled roughly 1.77 million—significantly more than 1.68 million in 2019 and 1.2 million last year. There’s no hard-and-fast rule on what warrants a repo, either, as it’s mostly at the discretion of the lender.

Banks and credit unions have seen the benefits of loaning money to people at high rates, even if drivers aren’t likely to make their payments. That’s because they can still split the loans into bonds and sell them off. Rating agencies say that some investors would still benefit from this practice even if 75% of borrowers defaulted on their loans so long as the cars return a decent amount of their original price at auction.

The increased cost of living, combined with nearly 20% interest rates on used cars, has the towing business booming. Whereas repossessors struggled to keep small teams busy during the height of the pandemic, they’re now urgently seeking drivers just to keep up. Ford, at least, has a potential remedy for this as a recent patent application details technology that instructs cars to repossess themselves by driving to a tow lot or even a junkyard.

It’s hard to know how much worse the situation will get for borrowers before it improves, but knowing that just because you can get approved doesn’t mean you should sign on the dotted line.

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