Auto loan delinquencies and repossessions are surging once again, with several indicators surpassing levels seen during the Great Recession.

Lenders, servicers, and stakeholders must contend with a new set of macroeconomic and operational challenges, shaped by pandemic-era lending behavior, high vehicle prices, and shifting borrower dynamics.

Delinquencies have reached record highs

According to recent data, auto loan delinquencies are now at or above Great Recession levels:

• Overall 60+ day delinquency rate reached 1.38% in Q1 2025, exceeding the 1.33% peak in 2009.
• Subprime delinquencies hit a record 6.6% in January 2025, the highest since tracking began in 1994.
• Prime borrower delinquencies have also edged down from 0.35% in January 2024 to 0.39% in January 2025.

These figures reflect broad-based pressure on borrowers, not just those in high-risk categories.

Repossession and default trends mirror the crisis era

The rise in delinquencies is translating into repossessions and defaults at an accelerated pace:

• 1.73 million vehicles were repossessed in 2024, the highest number since 2009.
• Auto loan defaults exceeded 2.3 million in 2024, surpassing recession-era peaks.
• The foreclosure rate on auto loans is now estimated at 8%.

Though repossessions remain below the 2009 peak, the rise in defaults suggests financial strain is widespread and potentially intensifying.

What’s driving the spike?

Multiple factors are converging in 2025 to create a challenging auto finance environment:

1. Lingering impact of 2020–2022 lending practices

Auto lending standards loosened during the pandemic, particularly for subprime segments. Borrowers took on longer-term, high-interest loans on overvalued vehicles. Many are now underwater, with car values declining while loan balances remain high.

2. Affordability challenges are intensifying

The average monthly payment for new cars now exceeds $750, while used car payments average $540. Rising interest rates have further strained borrower budgets, making vehicles harder to afford.

3. Inflation and wage pressures

Despite moderating headline inflation, essential costs such as housing, food and energy remain elevated. Many households are having to prioritize between basic needs and debt obligations.

4. Expiration of pandemic-era support programs

With stimulus checks, forbearance programs, and paused student loan repayments ending, borrowers are exposed to the full weight of their financial commitments once again.

5. Volatility in vehicle demand and tariff risks

Early 2025 saw a surge in purchases ahead of expected tariffs, followed by a sharp decline in sales. This volatility has impacted portfolio performance and future lending appetite.

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What’s next for lenders and the industry?

Short-term outlook (Next 6–12 months):

• Elevated delinquencies and repossessions, especially within 2021–2023 loan vintages.
• Increased risk aversion among lenders, leading to tighter underwriting.
• Rising regulatory and reputational risk for aggressive servicing practices.

Mid-term outlook (2026 onward):

• Gradual normalization as risky vintages age out and loan-to-value ratios improve.
• Broader adoption of AI-driven servicing strategies and flexible repayment options.
• Increased emphasis on borrower engagement and real-time risk detection.

Strategic actions lenders should consider

Lenders and servicers can take proactive steps to mitigate risk and reduce losses:

1. Strengthen early risk detection

Leverage tools for AI-powered call analytics and disposition validation (e.g., proInsight) to identify signs of borrower distress before delinquency occurs.

2. Improve efficiency with automation

Reduce operational costs and increase collections through omnichannel engagement (e.g., proCollect, proAgent).

3. Reinforce compliance infrastructure

As regulatory scrutiny grows, ensure all borrower interactions are well-documented, compliant, and defensible in the event of audits or disputes.

A critical moment for the auto lending industry

The auto finance landscape in 2025 is under significant strain. While today’s delinquency and default metrics mirror past crises, lenders now have access to better tools, data, and technology to respond more strategically.

Those who adapt early by prioritizing borrower insights, operational agility, and compliance rigor will be best positioned to navigate this period and emerge stronger.

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