Throughout the pandemic and related supply chain interruptions, consumers saw the cost of new and used vehicles skyrocket. Although those costs have begun to moderate in recent months, many of the motorists who went into debt to purchase an automobile are now stuck in loan agreements that they can no longer afford.
A variety of causes
As you might imagine, the sluggish economy is to blame for some of this increase in late payments and repossessions. Several industries have seen widespread layoffs recently, which has resulted in acute financial difficulties for those who have lost their jobs.
Another factor is rising interest rates, which the Federal Reserve has authorized in an effort to bring down the inflation rate. This increases the cost of borrowing regardless of a vehicle’s purchase price.
Some people are even voluntarily missing their payments. Being underwater, or owing more on a car than it is worth, is a bad place to be — and it has led some borrowers to simply surrender their vehicles rather than continue to sink money into a losing investment.
It’s all about perspective
While struggling consumers are clearly bearing the brunt of the current economic trends, some people are in niche industries that profit from that pain. Mike Aghyarian, who operates an auto yard in Texas, has seen the number of auto seizures jump from about 500 per month during the pandemic to as many as 1,900 per month now.
As of December, there were nearly 27% more people who were at least two months behind on a car note than there were a year earlier. Financial analyst Greg McBride encourages those in such a situation to contact the lender, who “may have loan modification or other arrangements that could be worked out so you can keep the vehicle.”