Subprime Auto Loan Delinquencies Hit Record

Investing

The auto loan landscape is teetering on the edge of chaos as delinquency rates climb to unprecedented heights. Data from the Federal Reserve and Goldman Sachs reveal that subprime auto loan delinquencies have rocketed past 5%, a stark milestone that surpasses the worst days of the 2008 financial crisis.

According to Experian,  30-day-plus delinquencies over the past year have risen 40% among consumers with the lowest credit scores, signaling growing distress among high-risk borrowers. Skyrocketing car prices, coupled with elevated interest rates and mounting economic pressures, are stretching household finances to the breaking point, leading to a surge in missed payments.

Prime auto loan delinquencies, while reaching a 15-year high, but short of the crisis-era peak, suggest a more limited ripple effect among borrowers with better credit. The Federal Reserve may also soon lower interest rates, offering a glimmer of hope, but with the likelihood of only a modest 0.25-point cut on the horizon, it’s unlikely to provide substantial relief for overleveraged consumers.

This brewing auto loan crisis casts a long shadow over all facets of the auto industry, but for used car retailers like Carvana (NASDAQ:CVNA), the problem could be especially acute and makes its stock a compelling sell. Copart (NASDAQ:CPRT), on the other hand, is in a sector that could do quite well from the crisis and its stock emerges as a strong buy.

Why Carvana Faces a Rough Ride

Carvana, the online used car giant known for its innovative vending machine sales, is walking down a perilous path due to its heavy reliance on loan originations, particularly in the subprime space.

The company’s “originate to sell” model packages a significant share of its loans into asset-backed securities (ABS), with nearly 44% classified as non-prime and over 80% of recent non-prime ABS deals featuring “deep subprime” FICO scores, according to noted short-seller Hindenburg Research (2025). This exposure is compounded by lax underwriting standards, with a former Carvana director admitting the company approved “100% of applicants,” leading to 60-day delinquencies on its “prime” borrowers that are over four times the industry average.

With Carvana retaining partial interest in over $15.4 billion in ABS, the escalating delinquency rate — now above 5% for subprime loans — threatens to erode the value of its loan portfolio.

Additionally, its key partner, Ally Financial (NYSE:ALLY) — which purchased $3.6 billion in loans in 2023 — has scaled back amid credit concerns, potentially triggering a liquidity crunch.

This perfect storm could push Carvana toward further financial instability, especially as consumer confidence wanes and repossession rates climb, further devaluing its inventory. CVNA stock has been an investor favorite, rocketing almost 7,700% since the beginning of 2023, but this developing subprime auto crisis could be its undoing, making its stock a sell.

Why Copart (CPRT) Could Thrive Amid the Chaos

On the flip side, Copart is poised to capitalize on the auto loan crisis. It is the global leader in the otherwise boring online vehicle auction industry, connecting buyers and sellers of salvage and used vehicles through its proprietary VB3 platform and handling over 2 million transactions annually across 11 countries.

Copart specializes in remarketing repossessed, salvaged, and distressed vehicles, meaning it benefits directly from the surge in delinquencies.

With U.S. auto debt reaching a record $1.66 trillion in the second quarter, according to Federal Reserve data, the likelihood of repossessions is climbing, feeding Copart’s inventory pipeline. The company’s robust network of over 200 locations across North America and its efficient digital platform position it to handle increased volumes seamlessly.

Unlike Carvana, Copart avoids the risks of loan origination, focusing instead on auctioning off vehicles from lenders, insurers, and dealers unloading distressed assets. As subprime delinquencies exceed 5% and even prime loans hit 15-year highs, the resulting repossession wave could boost Copart’s revenue and market share.

Its operational agility and lack of debt exposure make it a resilient player, potentially seeing a 10% to 15% revenue bump if repossession trends accelerate, industry analysts estimate. Moreover, Copart’s recent fiscal fourth quarter earnings showed a 4.5% rise in global insurance volume, hinting at its ability to leverage this crisis for sustained growth.

Although 81% of its inventory comes from the insurance market, often of vehicles deemed total losses, repossessions by finance companies could be a growth market for it. With CPRT stock down 15% in 2025, this is an opportune time to buy into what has historically been a strong growth stock.