Borrowers with low credit scores are falling behind on their car loan payments as inflation eats away at consumer spending power.

A report from Cox Automotive found 1.89% of auto loans in January were "severely delinquent" and at least 60 days behind payment, the highest rate since 2006.

Another report from S&P Global Ratings published last month says more than 6% of payments on subprime loans – those typically offered to people with lower credit scores that come with high interest rates – were at least 60 days late at the end of 2022. It was the highest December level since the credit rating agency started tracking in 2000.

“I think we're starting to see the stress on the consumer,” said S&P credit analystAmy Martin. “Not only are (subprime loan delinquencies) higher than pre-pandemic levels, they're higher than December of 2008.”

Why are loan delinquencies rising?

While the job market remains strong, Martin notes that consumers are feeling the pinch through inflation and the end of pandemic stimulus checks and child tax credit payments.

Meanwhile, interest rates on auto loans have gone up.

"They got hit with a double whammy," Martin said. "The subprime consumer is being impacted to a great extent by inflationary pressures, and their vehicle loans are not as affordable as they had been in the past."

But the subprime loans that borrowers are falling behind on remain a small portion of overall auto loans. Cox Automotive found buyers with subprime credit scores accounted for just 5.2% of sales in December compared to 13.9% in 2017.

"The overall automotive portfolio of loans is relatively healthy still," Cox Automotive spokesperson Mark Schirmer said. "The very high rates for subprime borrowers has knocked a lot of those people out of the market."

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Are repossessions up, too?

While delinquencies can damage borrowers’ credit scores and eventually lead to repossessions, Schirmer said Cox Automotive is seeing a return to "normal levels of repossessions, not red alert levels."