Are Car Repossessions on the Rise?
Understand the evolving trends in vehicle repossessions, their economic drivers, and the financial ramifications for car owners.
Car ownership often involves financing, and for many, this means managing an auto loan. When circumstances shift, making these payments can become challenging, leading to potential loan defaults. Understanding the implications of car repossessions is important for consumers.
Current Trends in Repossessions
Recent data indicates a notable increase in car repossessions across the United States. In 2023, an estimated 1.5 million vehicles were repossessed, marking a rise from 1.2 million in 2022. This upward trend has continued into 2024, with car seizures increasing by approximately 23% compared to the same period in 2023. Repossession rates have returned to pre-pandemic levels after decreasing in 2021 and 2022.
Analysts project that around 1.6 million cars will be repossessed by the end of 2024. Forecasts suggest rates could reach 1.7 million in 2025 and 1.8 million annually from 2026 to 2029. This surge in repossessions parallels an increase in auto loan delinquencies. The percentage of subprime borrowers at least 60 days late on car payments rose to 6.11% in September 2023. Auto loan delinquency rates exceeded pre-pandemic levels by the end of 2023, with 5.0% of outstanding auto debt being at least 90 days late in Q1 2025, an increase of 13.2% from Q1 2024.
Underlying Economic Factors
Several economic conditions contribute to the rising rates of car repossessions and loan delinquencies. Inflation has led to increased vehicle prices and higher costs for everyday living, such as rent, food, and energy. This reduces consumers’ disposable income, making it more difficult to afford car payments. The average monthly payment for a new car reached $726 in September 2023 and increased to $745 per month in the first quarter of 2025.
Rising interest rates also play a role, making car loans more expensive. As the Federal Reserve increases benchmark rates to combat inflation, auto loan annual percentage rates (APRs) follow suit, leading to higher monthly payments and loan costs for borrowers. For instance, average interest rates for new car loans are around 7.3%, while used car loans average 11.5%. These elevated borrowing costs, combined with high vehicle prices, can make it difficult for consumers to meet financial obligations.
The average auto loan term has lengthened, with new car loans averaging 68.6 months and used car loans averaging 67.2 months. While longer terms can lower monthly payments, they often result in higher total interest paid over the life of the loan. This can contribute to situations where borrowers owe more than their vehicle is worth, known as being “underwater” or having negative equity. This makes it harder for consumers to manage debt, increasing the likelihood of default and repossession.
Understanding Car Repossession
Car repossession occurs when a lender takes back a vehicle because the borrower has defaulted on their auto loan agreement. The vehicle serves as collateral for the loan, meaning the lender has a legal right to reclaim it if payment terms are not met. While a single missed payment can technically trigger a default, repossessions typically happen when payments are 90 days or more past due. The specific conditions for default are outlined in the loan contract.
There are two types of repossession: involuntary and voluntary. Involuntary repossession involves the lender, often through a repossession agent, seizing the vehicle without prior warning. This can occur at any time and place, including the borrower’s home or workplace. Voluntary repossession occurs when the borrower proactively returns the car to the lender because they can no longer afford payments.
For a voluntary surrender, the borrower typically contacts the lender to arrange a time and location for the return of the vehicle and keys. While it may avoid the suddenness of an involuntary repossession, the legal process and financial consequences are largely similar. After repossession, the lender usually sells the vehicle, often at auction, to recover the outstanding loan balance.
Financial Implications for Consumers
A car repossession carries significant financial repercussions for the borrower. One immediate impact is a substantial drop in credit scores, often by 100 points or more. This negative mark can remain on a credit report for up to seven years from the date of the first missed payment that led to the repossession.
Even after the vehicle is repossessed and sold, the borrower may still owe money. If the sale price of the car at auction is less than the remaining loan balance, including repossession fees, towing, and storage costs, the borrower is responsible for this difference, known as a deficiency balance. This balance can be substantial, especially if the vehicle’s value has depreciated significantly. Lenders can pursue collection of this deficiency balance, potentially leading to collection agency involvement or lawsuits, which can further damage credit and result in wage garnishments or bank account freezes.
A repossession on a credit report makes it more challenging to obtain future credit, including other auto loans, mortgages, or personal loans. If approved for new financing, individuals with a repossession history face higher interest rates. Rebuilding credit after a repossession requires consistent on-time payments on all remaining debts and a careful approach to new credit applications.