Car loan borrowers face record defaults and rising negative equity
Updated
Updated · The Wall Street Journal · Apr 26
Car loan borrowers face record defaults and rising negative equity
11 articles · Updated · The Wall Street Journal · Apr 26
About 30% of US car buyers trading in vehicles in Q1 2026 had negative equity, averaging $7,200 underwater, with some cases exceeding $40,000.
Average new car loans for negative-equity borrowers reached nearly $56,000, with monthly payments averaging $932, the highest ever. Default rates on car loans hit their highest level since 2010 in March.
The surge in negative equity stems from pandemic-era overpricing and longer loan terms, compounding debt burdens. Borrowers rolling over negative equity face double the risk of repossession compared to those with positive trade-in equity.
Could the surge in car repossessions ironically make used cars cheaper for other buyers?
With auto loan defaults at a 16-year high, are we heading for another financial crisis?
Are 8-year car loans a smart financial tool or a dangerous debt trap?
Is your car payment secretly blocking you from buying a house?
Why are some popular electric vehicles depreciating faster than gas-powered cars?
As AI demands more chips, will your next car become an unaffordable luxury?
U.S. Auto Loan Crisis 2025–2026: Subprime Defaults Hit 6.65% Amid Record $916 Monthly Payments
Overview
The U.S. auto loan market in 2025–2026 faces a severe crisis driven by financial pressure on households from inflation, stagnant wages, and rising living costs. This has led to record-high delinquency and default rates, especially among subprime borrowers, fueling a surge in repossessions. Soaring vehicle prices and longer loan terms have increased negative equity and monthly payments, trapping many borrowers in unsustainable debt. High interest rates and added costs like insurance and maintenance push total car ownership expenses toward or above $1,000 monthly. In response, lenders tighten credit, while regulators increase oversight, highlighting the urgent need for coordinated action to restore affordability and stability.