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Americans Are Behind On Auto Payments More Than Ever

Elite Personal Finance
Last Update: March 17, 2025 • Financial News •

According to Fitch rating data, https://www.fitchratings.com/structured-finance/abs/auto-indices, Americans are seeing record-high defaults with car payments.

According to the data, 6.6% of subprime auto borrowers were at least six days past due on their auto loan payments (January 2025), one of the highest levels on record. The next highest prime delinquency rates hit from September to December 2024.

There are many reasons for the statistical jump, starting with higher vehicle prices than average due to inflation and other macroeconomic conditions. High loan rates, over 9% for new vehicles and close to 14% for used cars, also translate to higher monthly payments.

At the same time, auto insurance rates have steadily increased year after year, up 19%.

Rising Car Rates Explained

According to Cox Automotive, the average price of a new vehicle is now in excess of $48,000, a nearly 15% increase versus March 2024. Specifically, 2025 expects to see more of the same, with insurers expecting to raise premiums by an average of 7.5%. Along with the new cost of vehicles and the ongoing threat of tariffs, which can hit at any time, it’s not uncommon for a new car to cost $30,000 to $40,000 in no time flat.

To add, delinquency rates for prime borrowers with credit scores in the 700-plus range also saw an increase in late payments, with 60-day delinquency rising to 39% from 35% from January 2024 to January 2025.

As a Result …

Many auto dealerships have turned to add-ons or additional loan products to tighten their profit margins and offset the loss of income due to the rising cost of car ownership.

Three of them are extended warranties, gap insurance, and maintenance packages. Extended warranties offer protection beyond the original manufacturer’s specifications, covering the repair cost of replacing auto parts. Many auto consumers express concerns that breakdowns can occur outside the factory warranty, creating thousands of dollars in additional profit for the dealership.

Another area auto dealers are turning to is gap insurance, which covers the difference between the amount owed on a car loan and the actual cash value of the vehicle after a theft or accident. Often, gap insurance comes with large premiums immediately tacked onto the loan balance, increasing monthly payments over time.

Lastly, maintenance packages like paint protection often have unnecessarily high markups, either as a one-time fee or rolled into vehicle financing, making it even harder for subprime auto borrowers to keep up with their monthly payments.

Extended warranties, gap insurance, and maintenance packages are three ways auto dealers combat decreasing profit margins due to defaults.

In Practice: Using The Example of a 2025 Toyota RAV4

Let’s put Fitch Ratings’ findings into perspective, taking the example of a 2025 Toyota RAV4 for $34,500. Assuming a new vehicle auto loan on a 60-month term with a 9% interest rate, monthly payments would come to roughly $707.

Now let’s consider how much add-ons contribute to the equation, using an extended warranty and a maintenance package as an example.

Assuming an extended warranty for an additional 60,000 miles costs around $2,500, rolling these costs into the loan would increase the total loan amount to $37,000. In turn, adding a maintenance package with all of your typical services, like oil changes and tire rotations, could cost an additional $1,200 for the same number of years, bringing the total loan cost to $38,200. Assuming the extended warranty and maintenance package are added to the loan, your monthly payment increases to $752, more than an initial $45 increase per month on the original payment.

These unnecessary add-ons would cost an additional $2,700 over a year, which could be detrimental to any subprime borrower struggling to pay fixed monthly expenses like auto loans, mortgages, and student loans.

4 Ways to Save On The Cost of a New Vehicle

To avoid becoming the next victim, we highly encourage you to take the initiative in reducing the overall cost of your new vehicle with three impactful negotiation tactics every time you step into the dealership.

Negotiating the MSRP (Not Just Your Monthly Payment)

Often, buyers make the mistake of focusing solely on monthly payments instead of the out-the-door price, also referred to as the manufacturer’s suggested retail price (MSRP). Focusing on monthly payments could disguise hidden costs over a long repayment term. With strong negotiating skills, you can bring down the price of a Toyota RAV4 XLE by roughly $2,000, which cuts down your overall loan balance, resulting in smaller monthly payments and less interest paid.

Get Financing Beforehand

Before visiting the dealership, we recommend securing financing by getting pre-approval from a bank or credit union. Remember that dealerships often jack up interest rates, costing you thousands over the entire loan term. It’s common to get a 9% APR from a dealer on a 60-month loan versus a 6% APR from a credit union.

Remember, the lower your interest rate, the lower your monthly payments.

Get Quotes from Multiple Dealers

One of the best strategies is to get quotes from multiple dealerships. Often, there’s price matching, where a dealership is willing to beat a competitor’s offer. It is not uncommon to get a vehicle at $7,000 off MSRP from one dealership versus another, so multiple offers make the most sense.

Time Your Purchase

One last step is to time your purchase strategically so that you’re buying at the end of the month, end of the quarter, or end of the year. This is a time when dealers are trying to hit their monthly goals, and they may be more open to negotiation. Do not forget about holidays like Memorial Day and Black Friday, which often come with unique financing offers, including 0% APR.

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