High interest rates and tight budgets are making monthly bills unaffordable for a growing number of vehicle owners. 

Car repossessions rocketed higher in the first half of the year, a sign of rising consumer distress as the US Federal Reserve weighs interest rate cuts.

So far in 2024, repos are up 23 percent compared with the same period last year, according to data from Cox Automotive. With high interest rates and inflation hitting household budgets, the spike in seizures provides a window into the average consumer’s financial health at a key time for policymakers. Repos started ticking up last year and have now surpassed pre-pandemic levels, up 14 percent compared to the first half of 2019.

“When you think about the costs for rent and shelter and insurance, all those things hit consumers and they have to choose what they will pay,” said Jeremy Robb, senior director of economic and industry insights at Cox. “More people are getting behind on payments because everything is more expensive.”

High Payments

Vehicle seizures, which are typically triggered after three months of missed car payments, dropped during the pandemic as lenders became more lenient and stimulus checks boosted borrowers’ finances. And while the rate of inflation has cooled, elevated borrowing costs have pushed monthly car payments to near-record highs, according to auto research firm Edmunds. The average interest rate for a new car is currently 7.3 percent, and for a used car it’s 11.5 percent, Edmunds data show. That means monthly bills are now $739 for a new car and $549 for a used car on average.

In June, the percentage of subprime auto borrowers who were at least 60 days late on their bills in June was 5.62 percent, down just slightly from a record in February, according to Fitch Ratings.

A Fed rate cut could provide some relief. Traders are anticipating the US central bank will begin lowering its benchmark rate in September, following data showing inflation cooling. That, in turn, could allow borrowers the chance to refinance or enter the market to buy something else.

“I think a lot of consumers are really waiting to see if interest rates come down a little,” Robb said. “That’s kept a lot of people on the sidelines.”