If you thought getting approved for a car loan was tough before, brace yourself. The auto lending market just hit a wall, and buyers with less-than-perfect credit are taking the biggest hit. Delinquencies are climbing faster than they have in years, lenders are slamming the brakes on approvals, and anyone walking into a bad credit dealership today is facing interest rates that would make your grandmother faint. Real people are losing their cars and watching their monthly payments spiral out of control while the experts keep talking about economic indicators.
- Auto loan delinquencies jumped more than 50% since 2010, making car loans riskier than credit cards and nearly as risky as student loans.
- Borrowers with scores below 600 are paying interest rates above 21% on used cars, while average loan balances have grown 57% since 2010.
- Nearly 28% of people trading in cars owe more than their vehicles are worth, with many underwater by $6,000 or more.
The Numbers Tell a Brutal Story
Back in 2010, auto loans were the safest bet in consumer lending. Today, they’re second only to student loans for delinquency rates. As of September 2025, early-stage delinquencies hit 1.13%, the highest level in five years. But here’s what really stings: the problem now affects all types of borrowers. People with prime and near-prime credit saw their delinquency rates climb even faster than those with subprime scores.
Even super-prime borrowers aren’t immune. Their severe-stage delinquencies shot up over 300% year-over-year. When the people with the best credit in America start missing payments, you know something’s broken.
What This Means for Your Wallet
Let’s talk real numbers. If your credit score sits around 500, you’re looking at interest rates near 22% for a used car. That’s not a typo. Someone financing a $20,000 used car over five years would pay around $548 per month and fork over $12,857 in interest alone. Compare that to someone with a 650 credit score who pays $465 per month and $7,890 in interest for the same loan.
The average new car payment hit $749 in the second quarter of 2025. Used car payments averaged $529. But these are just averages. If you’re dealing with bad credit and negative equity from your last car, your payment could easily top $900 per month.
How Did We Get Here?
Cars got expensive. Really expensive. The average used car now costs $25,565, while new cars push close to $50,000. During the pandemic, people were paying $728 above sticker price instead of the usual $2,600 below sticker. Throw in interest rates that doubled from pre-COVID levels, and you’ve got a recipe for disaster.
Lenders loosened their standards during the pandemic, handing out long-term, high-interest loans on overpriced vehicles. Many buyers are now underwater, with car values dropping while loan balances stay high. The average monthly payment for new cars exceeds $750. Used cars average $540. When you factor in soaring insurance costs (drivers with poor credit pay nearly three times more for insurance), the math just doesn’t work for a lot of people.
The Underwater Problem Gets Worse
Here’s where things get scary. About 28% of people trading in cars are underwater on their loans. They owe an average of $6,754 more than their cars are worth. Nearly a quarter of these underwater trade-ins carry more than $10,000 in negative equity. Some people owe over $15,000 more than their vehicle’s value.
What happens when you try to trade in an underwater car? You roll that debt into your next loan. Buyers who did this had average monthly payments of $915 in the second quarter of 2025. They financed $12,145 more than the typical new-vehicle buyer. You’re basically paying off your old car while trying to pay for your new one.
Repossessions Are Back with a Vengeance
In 2024, lenders repossessed 1.73 million vehicles. That’s the highest number since 2009. Auto loan defaults topped 2.3 million, surpassing recession-era peaks. The foreclosure rate on auto loans hit 8%. In August 2025, more than 6% of subprime borrowers were 60 days or more delinquent. That’s an all-time high.
Your Best Options Right Now
First, know your credit score before you walk into any dealership. Check what interest rates match your score range. Get pre-approved from multiple lenders so you have real numbers to work with.
If you can wait, spend a few months paying down debts and boosting your score. Even jumping from a 500 to a 650 credit score saves you thousands in interest. Make the biggest down payment you can afford. This reduces your loan amount and shows lenders you’re serious.
Consider buying less car than you think you need. A reliable used car for $15,000 beats a $30,000 vehicle you can’t afford. Look into shorter loan terms if possible. Yes, the monthly payments are higher, but you’ll pay less interest and avoid being underwater for years.
What Happens Next
Experts don’t see relief coming soon for bad credit borrowers. The Federal Reserve cut rates twice in 2025, but those with poor credit aren’t seeing much benefit. Lenders are tightening standards across the board. Subprime lending dropped from nearly 17% of all loans in late 2024 to about 15% in the third quarter of 2025.
If you absolutely need a car now and your credit isn’t great, prepare yourself for sticker shock on the interest rate. Shop around, negotiate hard, and whatever you do, don’t let anyone talk you into an 84-month loan just to lower your monthly payment. Those extended terms keep you underwater longer and cost you thousands more in interest.
The auto lending market isn’t getting better anytime soon. Make smart choices now, or you’ll be dealing with the consequences for years.
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