‘Tip of the negative equity iceberg’: A record number of Americans are grappling...

With a record 16% of American consumers paying at least $1,000 a month for their cars, it's no surprise that drivers are starting to fall behind on their bills.

The percentage of borrowers at least 60 days late on their car payments is higher today than it was during the peak of the Great Recession in 2009.

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There are multiple factors driving this trend. Car financing costs are climbing as the Federal Reserve continues its aggressive campaign of interest rate hikes to combat persistent inflation.

At the same time, used car values are dropping, leaving debtors at risk of owing more money than their cars are actually worth.

As your monthly car costs increase, you can dodge a debt default by avoiding two common auto loan mistakes.

Late payments, repossessions are on the rise

Used car prices surged during the pandemic due to supply chain challenges, which forced buyers to take out bigger loans — with higher APRs — for their vehicles.

Despite the fact that car prices started to cool off by the end of 2022, a concerning trend of auto loan defaults and car repossessions has started to surface.

The percentage of subprime auto borrowers who were at least 60 days late on their bills hit 5.67% in December, trumping 5.04% in January 2009 at the peak of the Great Recession, according to the credit rating agency Fitch Ratings.

Ally Financial (NYSE:ALLY), one of the largest providers of car financing in the U.S., said its percentage of car loans that were more than 60 days overdue rose to 0.89% in Q4 2022, up from 0.48% a year earlier.