Americans Took Longer Car Loans To Afford Higher Prices. Now Some Are Defaulting Years Later

Car payments have been climbing for years, and for many buyers, the numbers are starting to stretch household budgets. Higher vehicle prices and rising interest rates have pushed monthly payments into a territory that once seemed unthinkable for a typical car purchase.

Just last week, we reported that nearly 1 in 5 car buyers now has a $1,000 monthly payment. According to the latest Experian State of the Automotive Finance Market report, about 19% of new-vehicle loan payments have now crossed that four-figure threshold.

New research suggests those rising payments may be catching up with some borrowers several years after they drive off the lot. A new LendingTree analysis of roughly 162,000 anonymized credit reports found that 1.99% of consumers with recently active auto loans have a default on record.

At first glance, that number might not seem particularly large. The timing of those defaults, however, reveals something important about how modern car loans work.

Defaults Often Hit Years After the Purchase

One of the most striking findings from the LendingTree data is when borrowers tend to fall behind. Defaults are relatively rare in the first year of an auto loan, with only 8.7% of defaulted loans occurring within the first 12 months.

The largest share of defaults happens between two and four years after the loan begins, accounting for 36.7% of cases. This delayed pattern reflects the reality of modern car ownership and how household finances evolve over time.

A new vehicle is usually covered by warranty, the excitement of the purchase is still fresh, and the monthly payment may feel manageable. After several years of ownership, the situation can change. As repair costs begin to accumulate, the loan balance remains substantial, and unexpected life events such as job changes or medical bills can put pressure on household budgets.

This is where the risk of stretching car loans becomes clearer. A payment that felt manageable when the vehicle was new can become a growing burden as the car ages and financial circumstances shift. What initially looks affordable can gradually turn into a serious strain on a household budget.

The payment that once seemed manageable can suddenly become much harder to keep up with.

Long Loan Terms Are Common Among Defaults

The structure of modern auto loans also appears to play a role. According to LendingTree’s analysis, borrowers who defaulted typically paid about $540 per month on an original loan amount averaging $24,223.

The average default occurred roughly 42 months into a loan with an original 69-month term. Longer loan terms were especially common among borrowers who defaulted, with nearly 62% holding loans with terms of 72 months or longer.

Extended loan terms have become increasingly common as buyers try to keep monthly payments manageable despite rising vehicle prices and higher interest rates. Spreading a loan across six or seven years can reduce the monthly payment, but it also keeps borrowers in debt longer, often well after the car has started to age.

Defaults Are Concentrated Among Lower Credit Scores

The data also shows that defaults are not evenly distributed across the market. Borrowers with lower credit scores account for the overwhelming majority of defaults.

According to LendingTree, 83.7% of consumers with defaulted auto loans had credit scores below 580, placing them in the deep subprime category. The average credit score among defaulted borrowers was 529.

Borrowers in this category often face significantly higher interest rates, which can push monthly payments higher even on relatively modest loan amounts.

Matt Schulz, LendingTree’s chief consumer finance analyst, says affordability pressures are a major factor.

“$540 a month is an awful lot of money for most Americans,” Schulz said. “When you factor in the high prices of vehicles today and the high rates that many shoppers face, especially those with imperfect credit, many Americans have little choice but to accept that monthly payment.”

Some States See Much Higher Default Rates

The LendingTree study also found significant regional differences in default rates.

Louisiana had the highest auto loan default rate at 5.00%, more than double the national average. West Virginia followed at 4.59%, with New Mexico close behind at 4.31%.

Other states with relatively high default rates included Mississippi, Arkansas, Kentucky, and Tennessee. At the other end of the spectrum, Minnesota had the lowest default rate at 1.05%, followed by Utah at 1.13% and Massachusetts at 1.20%.

Researchers say differences in income levels, credit scores, and regional economic conditions can all influence default rates.

A Growing Affordability Challenge

Taken together, the findings highlight how the economics of car ownership have shifted in recent years.

Vehicle prices surged during the pandemic-era supply shortages, and interest rates rose sharply as the Federal Reserve fought inflation. Lenders increasingly offered longer loan terms to keep monthly payments from rising even faster.

Longer loans helped many buyers make expensive vehicles feel attainable. The financial strain may not appear right away.

For some borrowers, it shows up several years later when the warranty expires, the loan balance remains high, and the monthly payment begins competing with everything else in the household budget.