How Many Cars Are Repossessed Each Year?
Gain insight into the annual volume of car repossessions and the underlying factors driving these automotive trends.
Car repossessions are a significant aspect of the automotive finance landscape, reflecting both individual financial health and broader economic conditions. These actions occur when a borrower fails to meet the terms of their vehicle loan agreement, most commonly by missing payments.
Understanding Car Repossession
Car repossession is when a lender takes back a vehicle when the borrower defaults on their loan obligations. This typically happens after a borrower misses several scheduled payments, violating the terms of their auto loan contract. The loan agreement establishes the vehicle as collateral for the debt, giving the lender a right to reclaim it if the borrower fails to repay the loan.
Lenders, including banks, credit unions, and auto finance companies, often employ third-party repossession agents to recover the vehicle. The primary goal of repossession is to recover the collateral and mitigate financial losses from a defaulted loan. Once repossessed, the vehicle is usually sold, often through an auction, to recoup the outstanding loan balance. The proceeds are applied to the loan, and the borrower may still be responsible for any remaining deficiency balance, along with repossession and sale costs.
Current and Historical Repossession Data
The number of car repossessions in the United States fluctuates, reflecting changing economic conditions and consumer financial stability. In 2022, approximately 1.2 million vehicles were repossessed from borrowers. Estimates suggest that in 2023, around 1.5 million vehicles were repossessed, representing a notable rise from 2022.
Looking at 2024, the trend of increasing repossessions continued. Reports from Cox Automotive indicate that repossessions surged by 23% in the first half of 2024 compared to the same period in 2023, returning to pre-pandemic levels. Approximately 1.73 million cars were seized by lenders in 2024, a 16% increase from 2023 and a 43% increase from 2022. This volume has not been seen since 2009, following the financial crisis. Cox Automotive projects repossessions could rise, potentially reaching 1.7 million in 2025 and 1.8 million annually between 2026 and 2029.
Historically, repossession numbers dipped during the COVID-19 pandemic due to government stimulus measures and lender leniency. Repossessions fell from nearly 1.7 million in 2019 to about 1.1 million in 2021. As relief measures ended and economic pressures mounted, repossession rates began to climb. In the first quarter of 2024, 4.4% of auto loans were at least 90 days past due, a 13.4% increase from last year and a 32.83% rise over the past decade. The annualized default rate reached 3.07% in June, significantly above May 2019 levels.
Factors Influencing Repossession Numbers
Several economic and industry-specific factors contribute to the fluctuations in car repossession. General economic conditions play a significant role, particularly unemployment and inflation. When unemployment rises, individuals may lose income, making it difficult to keep up with loan payments. Similarly, high inflation erodes purchasing power, forcing consumers to prioritize essential expenses over discretionary expenses, including car payments.
Rising rates also directly impact affordability. As interest rates climb, the cost of borrowing for vehicles increases, leading to higher monthly payments. Average interest rates for new car loans are around 7.3%, while used car loans are around 11.5%, resulting in average monthly payments of about $740 for new cars and $552 for used cars. These elevated costs can strain household budgets, especially when combined with increased living expenses.
Lending standards by financial institutions also influence repossession numbers. During periods of looser lending standards, loans might be extended to borrowers with lower credit scores or less stable financial situations. This can lead to higher default rates and more repossessions when economic conditions deteriorate. Conversely, tighter lending standards, which have been observed in some areas, can reduce new loans but improve outstanding loan quality, though they may limit credit access. The overall health of the automotive market, including vehicle prices and inventory levels, also affects repossession trends. High vehicle prices necessitate larger loan amounts, increasing the financial burden on borrowers.