Why Auto Loan Delinquencies Aren’t (Turn) Signaling a Crash

Every few years, a familiar ghost haunts investors: subprime auto loans. It is lurking again.

Citing rising delinquencies among America’s riskiest borrowers, headlines warn this is another sign lower-income folks are cash-strapped and cutting back, setting up major economic pain. Now, we don’t deny many households are feeling financial pressure, nor do we dismiss the hardship. But scale and context show why auto loan delinquencies aren’t some massive crisis in hiding, but rather, a bullish false fear.

These reheated fears are now spilling into a fresher area of concern—America’s supposedly bifurcated economy. Most handwringing is based on new Fitch Ratings data, which show the share of subprime borrowers 60+ days delinquent on their car loans is now the highest since 1994.^[i] This, they suggest, signals America’s worse-than-appreciated household finances—especially among mid- to low-income earners, where most subprime loans originate.

With this in mind, pundits are drawing a line to “K-shaped economy” worries—in which high earners do well while low earners struggle—which has been a dominant theme of US economic coverage this year. Since lower earners outnumber higher earners in America, this supposedly puts the economy on shaky footing. The thinking? If these folks can’t make their car payments, which they claim are generally the last thing to go, it means they really can’t make ends meet—an awful omen for consumer spending.

But, as always, scale and context are key. Chiefly, these data don’t scream “crisis in waiting” to us. First and foremost, the aforementioned share of subprime borrowers 60+ days delinquent is just 6.65%.^[ii] Sure, this is a decades-long high, but it also shows the overwhelming majority of subprime borrowers are making their payments on time. Not to mention the overwhelming majority of all borrowers, given subprime represents only around 15% of auto lending.^[iii] Prime borrowers have a 0.37% 60+ day delinquency rate—predictably, much healthier than their subprime counterparts.^[iv]

We see a different explanation here. Consider: Subprime delinquency rates have grown in lockstep with rising vehicle prices, insurance premiums and financing costs since mid-2021. Prime delinquency rates are up over this stretch, too. In other words, because cars got insanely expensive, car payments and maintenance costs are just bigger now. This seems more like a story of limited consumer choice forcing lower-income houses to try to overextend themselves and make it work—a problem the car industry is now working to rectify with more compact and economy models. That doesn’t diminish the effect on households, but it cuts against the narrative of widespread struggles among lower-income households on all fronts. Still, en masse, very few auto debtors are late on payment.

Plus, these fears aren’t new—by any stretch of the imagination. Consider Exhibit 1, which charts the percentage of subprime auto loans 60+ days delinquent and US recessions since September 1993, the oldest data available.

Exhibit 1: Subprime Auto Loan Delinquencies and US Recessions

Source: Fitch Ratings, as of 11/18/2025. Auto Loan 60+ Delinquency Index, monthly, September 1993 – October 2025. Recession shading based on NBER business cycle dating.

Rising delinquencies spurred fearful headlines in 2016, 2017 and 2019, all of which featured new highs. Yet none induced a recession or bear market—2016 and 2017 were great years for the economy and stocks. A recession followed in 2020, but that was tied to COVID lockdowns halting economic activity. Shortly thereafter, rates tumbled to their lowest levels in years as COVID assistance programs gave borrowers a big cushion.^[v]

Nonetheless, worries resurged in 2023 as delinquencies returned to 2019 levels amid rising interest rates and inflation. And nearly three years later, they still haven’t brought armageddon. Today’s rates are only a smidge higher, which mostly continues the long, COVID-interrupted uptrend. That doesn’t look to us like an acute crisis point.

Now, delinquency rates alone won’t tell you about households’ health or future spending trends, which seem central to these fears. Rather, you would look at how households’ debt obligations stack up against disposable incomes. If Americans are drowning in debt, they would likely tighten their purse strings.

Data suggest they aren’t. Exhibit 2 helps show this by charting US household debt service payments as a percentage of disposable income since 1980’s start.

Exhibit 2: On Average, US Households Aren’t Drowning

Source: Federal Reserve Bank of St. Louis, as of 11/18/2025. Household Debt Service Payments as a Percent of Disposable Personal Income, quarterly, Q1 1980 – Q2 2025.

Households’ debt interest outlays currently comprise around 11% of disposable incomes, leaving plenty of room for spending.^[vi] That may be up from very recent history, but it is well below levels seen during past expansions. Not much here points to a broader credit crunch.

As for the related concerns that banks are increasingly saddled with bad loans, the numbers don’t add up. Consider: Auto loans currently make up just about 9% of all household debt.^[vii] And, again, only 15% of these are subprime.^[viii] The lion’s share of auto loans are going to folks with 720+ credit scores, who are less than 1% delinquent.^[ix]

So even if all delinquent subprime borrowers somehow defaulted today (extremely unlikely, in our view), it would lack the power to upend banks and ripple into the economy. It is simply too small a slice of banks’ balance sheets in an era where they are flush with capital (and the idea subprime mortgages caused 2008 is an oversimplification that misses mark-to-market accounting’s huge influence and the government’s chaotic response thereafter).

We doubt this issue is sneaking up on markets, either. Yes, stocks are down a bit lately, but auto loan concerns predate that. They didn’t suddenly start having an effect—markets are too efficient for that. Another way to see this? High-yield (or below-investment grade) credit spreads, which are among the most sensitive indicators of borrowing problems. Exhibit 3 charts this since 1997.

Exhibit 3: Credit Spreads Aren’t Screaming, Either

Source: Federal Reserve Bank of St. Louis, as of 11/18/2025. ICE BofA US High Yield Index Option-Adjusted Spread, 12/31/1996 – 11/18/2025.

This spread hasn’t moved much since mid-October, when these issues re-entered the limelight.[x] It is also near historical lows—probably not the case if a broad crisis were truly brewing.

We find it much more likely that markets have already recognized these fears, priced them in and moved on. There simply isn’t any surprise power left. The upshot? False, stale fears like this are bricks in the wall of worry stocks climb throughout bull markets.