Auto loans remain the second-largest debt category for American consumers, behind mortgages. Now, more people are falling behind on their car payments, with total auto loan debt reaching more than $1.6 trillion nationwide.
"The timing of these red flags right now is, I think is especially alarming given sort of the larger trends in the market around the affordability of cars," said Tara Mikkilineni, senior fellow at the Consumer Federation of America.
The organization released a report highlighting the trend and its potential impact on the economy. Mikkilineni said car prices are higher, and costs for insurance and repairs are up — in part due to tariffs.
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"All of these things have sort of combined to create this affordability crisis," she said. "And I think that that is showing up in the data around how consumers are experiencing distress. And we're seeing that in the numbers around delinquencies, defaults, repossessions."
LendingTree data shows more than 5% of Americans with car loans are past due. The rates vary by state, with Mississippi nearing 10%, followed by 8.4% in Louisiana and 7.8% in Georgia.
"When you see all as many defaults as we see now, it is a signal that ... people's financial situations are much worse than what we realize," said James Lambridis, CEO of DebtMD. He added that many of his clients are also burdened with credit card debt, which he described as a "vicious cycle" for those trying to get out.
"First and foremost you know you got to pay your mortgage and rent along with groceries and basic living expenses, so that's why the car payment takes a backseat to those things," Lambridis said. "So as a result, you're seeing more and more people default on these loans."
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Consumers are also borrowing more and signing longer loan terms. LendingTree’s report found Gen Z borrowers have the highest auto loan delinquency rates. Mikkilineni said the figures should be a warning sign of the financial strain many Americans face.
"I think this sort of panoply of factors really is very alarming and is potentially suggestive of larger distress in the economy that we should really be paying attention to," she said.
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