As borrowers struggle to keep up with car payments, auto lenders offer payment extensions to keep those loans from going bad.
Car Dealership Guy reports Auto Lenders Increasingly Turn to Payment Extensions.
Payment Extension Trap
- 60+ day auto loan delinquencies in the subprime cohort (less credit-worthy borrowers) hit 6.56% in December 2024—the highest ever recorded. That’s up from 6.01% in November 2024 and 6.27% in 2023.
- Delinquencies for prime (more credit-worthy borrowers) rose as well, but barely—hitting 0.62%, up from 0.58% in November 2024, and down 0.02% against 2023.
- Lenders are using payment extensions to mitigate loans from falling further into delinquency (or more costly repossessions). Subprime borrowers took extensions at nearly five times the rate of prime borrowers—3.81% vs. 0.77%.
- But some subprime lenders saw even bigger jumps. DriveTime’s extension rate shot up from 4.71% to 6.41%—while Carvana’s subprime loans jumped from 3.72% to 5.41%. Westlake’s subprime extension rate also climbed past 9.5%.
Kicking the Can
Extensions provide temporary breathing room, but they can come at a steep cost. For example, a six-month extension on a $25,000 loan at 15% APR—not an uncommon scenario in subprime—tacks on over $3,100 in extra interest and extends the debt well beyond its original term. That’s why financial analysts often call the approach “extend and pretend”—kicking the can down the road without solving the underlying problem.
Between the lines: Some lenders know the risks but seem willing to take them. Ally and CarMax admitted in recent earnings calls that they’re loosening extension policies, making it easier for borrowers to delay payments.
- Ally CFO Russ Hutchinson said the company is moving back the timing of repossessions and removing some of the friction around extensions.
- CarMax CFO Enrique Mayor-Mora stated that the company “began testing an enhancement to our policy that further empowers delinquent customers to take advantage of a payment extension.”
- But the New York Fed warns that too many extensions “creates a wave of debt that likely won’t be paid” and puts further pressure on lenders.
What we’re watching: While the $126 billion in securitized auto loans accounted for just roughly 18% of the $704 billion in total U.S. auto loan originations last year—some analysts believe it’s a bubble beginning to grow.
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Trump’s Tariffs Will Increase the Cost of a Pickup Truck by $8,000.
On February 26, I noted Trump’s Tariffs Will Increase the Cost of a Pickup Truck by $8,000.
Trump says it’s full speed ahead with tariffs. It will cost US jobs.
Is the plan to make cars so unaffordable that nobody buys one?
Factor in less immigration, a cutoff of aid for illegal immigrants, and student loan repayments and you have a nasty mix of recessionary factors.
Experian data showing big difference in average interest rates by credit scores.
New Car APR Used Car Apr
(781 or above) 5.08% 7.41%
Prime
(661 — 780) 6.07% 9.63%
Near prime
(601 — 660) 9.73% 14.07%
Subprime
(501 — 600) 13.18% 18.93%
Deep subprime
(500 or below) 15.43% 21.55%
Average credit card rate is 24.2%
https://www.lendingtree.com/credit-cards/study/average-credit-card-interest-rate-in-america/
Big jump in credit card interest rates in the last few years from prior decades.
https://www.statista.com/statistics/633302/interest-rate-on-credit-card-plans-usa/
Experian data for average auto loan amounts
Credit Score New vehicles Used vehicles
All $41,086 $26,091
781 to 850 $39,369 $27,860
661 to 780 $43,138 $27,243
601 to 660 $42,765 $25,047
501 to 600 $38,400 $21,905
300 to 500 $34,608 $20,082
What is Subprime auto loan? Do they sell risky auto loans to another risk taker?
ALL OF A SUDDEN: all ECON NEWS ITEMS are going south/Negative!
Interesting. ALL WITHIN 36 days of the Inauguration.
COINCIDENCE?
Brother in law owns a factory with 300 staff making coolstore walls, office partitions and hospital temporary walls. This year he has no orders – zero.
He had a bunch of vans and company cars on lease up until the end of last year – all needed renewing. Didn’t buy anything.
He’s currently renting a few Vans off a larger company who has no work for them plus employees with company cars are been given incentives to drive their own cars.
If he gets no orders by the end of May he will shut up shop.
WOW. This was not sudden then?
It sounds like he has only one or two customers that can happen in those type of businesses. Lots companies are like that
Student loans, CRE loans, credit cards, mortgages, etc. It’s gonna be the mother of all crashes.
The moneylenders have us by the short hairs.
Or people can’t differentiate between a want and a need.
Need: Cell phone
Want: $1200 cell phone
Need: Coffee in the morning
Want: $4 coffee
Need: phone
Want: the most expensive cell phone and service plan so they can keep up with the Joneses
Because they can get away with it. People Don’t save enough money. If we can’t get a car loan cheaper than we can get a cd rate then we pay cash for our cars. Our FICO scores are >800 so we always get the cheapest rate.
In the supermarket near me two male bakers are gone and the guy in the Rotisserie
chicken was working alone. I got the last pc from a few days ago. He told me: u have to wait. He wasn’t rude. He opened the oven door and pulled a two dozen chicks. I put the old chick in the shelve and bough a new one. Supermarket are in the retail business. Every worker is a retailer: the bakers, the cashiers, people who push fruits and veggies from point A to B….everybody. They have to serve the customer first. That have to come from the top down below to the front line, to people who work with customers every day to generate sales.
What does that all mean? These stores can’t find qualified help to put the correct price on the shelf’s the error rate is one wrong price on every receipt.
becoming more and more evident we are no longer a country of capitalism, we just keep bailing out everyone/everything…how long before congress creates another FHFA agency to make car and credit card payments on behalf of delinqeunt borrowers to lenders/servicers?
And, barring a miracle, the debt is only going to get worse. Further stimulus will only rekindle the inflationary flames. I’ve spoken with several business owners that say sales are unsustainably (unsurvivably) BAD and continuing to decline. Many of our friends and fellow citizens have prioritized owning a larger house, nicer car or bigger big screen with little or no focus on “old” values like minimizing (or eliminating) debt and staying within a sound budget.. Banksters may offer predatory loans, but no one forced consumers to sign.
Just got my insurance renewal. 25% increase. WTF
Who is your insurance company?
Shop around, I always save if I do that.
It’s called the golden age for a reason. Asset holders make all the gold!
Mine was about that. That is the consequence of inflation. The dollars in your pocket buy less, so you need more of them. Ever see a restaurant menu from the 1950s or 1960s? The prices are an indication of how.much has been stolen from us through the insidious process of inflation.
Any lender that would charge anybody 15% interest when they’re already having trouble is not helping them; they are taking advantage of them and practically burying them. The car owner would be better off to just give the car back and walk or take public transportation till they get back on their feet.
Extend and pretend is a joint venture between lender and debtor.
Again lenders didn’t force anyone to sign
15% is just the beginning. Try 28% AND loaded with croak and choke insurance.
So, in 2008, it was subprime home loan delinquencies, and now it is for subprime auto loans? Is it because many people are living in their cars now??!!
Prime. borrowers, speculators and flippers caused 2008…subprime was the scapegoat Wall Street created
I think the rating agencies giving AAA to garbage caused it.
– As borrowers struggle to keep up with car payments, auto lenders offer payment extensions to keep those loans from going bad.
> Not exactly, as the extensions allow the “Lender” to get further behind, and in many cases will lose the car to repo in the end. How did that help the Buyer exactly? The “Loans” were already bad, and the reason for the extension in the first place. Not all obviously fall in this area, but many do, and it wipes them and there family’s out at times…
The auto industry (lack of sales and defaults on loans) is going to play a large part in our recession in the next year. More people are going to get laid off. At least 50% of the population can’t afford to buy a car.
Looking at a diesel pickup. Bit fancier inside, but no leather. Heavy duty type. 70-75 grand. Told this sales guy contact me if it gets down to 55 grand. He said it’s inflation. I said too much.
Can you please cite a reputable source that says 50%+ of the population can’t afford to buy a car? Too many people on this site just post personal POV nonsense. I’d like to know you’re not one of them. Thanks
Read Mish previous posts on # of people that can’t afford a $400 emergency expense and the number of people living paycheck to paycheck. Anyone that is delinquent on mortgage, auto loan, student loans or credit cards probably wouldn’t qualify for an auto loan now. That includes sub prime.
So this is what I said 2 days ago when the post was “Trump’s Tariffs Will Make The Cost Of A Pickup Truck Go Up $zillion!”
S
D
P
Sub prime borrowers pay high rate and high insurance rates when they buy. Extensions save lenders from the recycle bins and keep their total assets intact. The lenders offers a slow payers – before he is 90 days late – an extend terms with lower rate. They don’t want his car back. They have to sell it again at lower prices, after delays, repairs and new commissions, possibly a bad item from a flood zone. Basically selling subprime customers is a memo business.
The fact that there is such a thing as a subprime auto loan is shocking and ridiculous.
well we agree on that.
WC Fields is proven right every minute
P.T. Barnum.
Both.
I believe W.C. Fields said “Never give a sucker an even break”, while Barnum said “There’s a sucker born every minute”.
So how do you propose poor people get to work, get groceries and get their kids to school?
Don’t say public transportation because that rarely serves more than a tiny fraction of any given city.
And you will wind up in the hospital or dead.
You can buy a lot of decent used cars for $5-8,000. I realize that a lot of people can’t scrounge up $5,000 cash. Those people are not served by buying a MORE expensive vehicle with a high interest rate loan.
Problem is maintenance (as I noted below). It’s, when, not if it needs a repair. Anything done at a shop starts at a grand and goes from there. Many repairs are 3-4K or more which if you have to do a couple of times makes that car not worth having.
All my old cars became to expensive to maintain, they didn’t fall apart. In other words when it starts costing 300 a month in repairs (3K a year, which is say 3 things going wrong which is not a lot on an older car when some of those are routine things like brakes) you are essentially at a lease car payment only you are driving a beater instead of a new car.
Buy an old used car.
Who is going to maintain that? Have you had anything worked on lately? Virtually any work is 1000 bucks minimum. When (not if) a couple things go wrong on an old car it can cost 3-4 grand to fix.
I agree, its kind of the problem of pick your poison. If you have an old car, repairs on expensive, your alternative, is to lease, which means a perpetual car payment. We have a 25 year old Toyota Corolla. I put $4000 worth of repairs, thankfully i have not had to repair anything on it in 3 years, since i fixed everything the previous owner did not fix. Good thing Toyotas last a long time, but i hear what you are saying.
In NYC many people are able to get by without owning a car.
Maybe poor people should prioritize earning more money before having kid (after kid) , buying the latest iPhone and the latest big screen TV
Extend and pretend. But probably no systemic contagion. Just a lot of consumer misery in time for Medicaid adjustments to wobble the balance sheets of this cohort. I’m not urging an angle, just observing. I’m glad I get financially conservative in seeming boom times, because the worm always turns. I learned this in a more prosperous era for the non-rich, allowing some lessons with limited consequences, back then.
Oh, you mean back when there was “upward mobility”.
Auto prices are in a bubble.
As is Residential RE.
Stocks are very bubbly.
Commercial RE may be the only bubble that has burst.
And that mess is held in abeyance by lenders not grabbing properties as would have happened before.
Bubbles are no longer allowed to burst.
No pain is allowed.
Except for the working class.
Plenty O’ Pain for those folks.
So, nothing is affordable for the average working class American.
Good point. The buoyancy of asset holders is probably based on an implicit faith in the plunge protection team riding over the hill.
Name one politician who genuinely cares about and works for the average working class American
Bernie Sanders, Tammy Duckworth, Dick Durbin, Brad Schneider.
Matt Gaetz
Tom Massie from Kentucky
So what do you propose to straighten things out?
More of what is not working? More Fed, More Green new deal cause everything is melting melting melting. More grift in DC cause that is what is important so as to retain power by deep state.
There is an alternative which is road currently being embarked upon with new administration.
What I am seeing right now is energy is getting cheaper.
I see interest rates starting to back down as inflation premium starts to see some pressure eased with lower energy.
Jay Powell and the Fedlings have managed to keep their pie holes pretty much shut for a few weeks. That in itself is a pleasantry long absent.
“Jay Powell and the Fedlings have managed to keep their pie holes pretty much shut for a few weeks. That in itself is a pleasantry long absent.”
Nice!
If it keeps up may actually translate to things looking up.
Think I am on same page as you, screw the Central authoritarians.
That will just reheat inflation as sales (and credit) keep hitting record highs
People can make a choice whether to keep repeating what is not working for them or go back to basics and get equity based.
That Debt sustained lifestyle is failing.
If it breaks up marriages, destroys relationships, working two or three jobs just to make next payment, why participate is a question that should get asked.
At least there is an option coming to take control back of ones life.
“Commercial RE may be the only bubble that has burst.”
CRE has not burst. The vast majority of these interest only loans are getting modified by lenders to continue kicking the can down the road. Sure. There have been some fire sales on properties but not nearly enough to classify CRE as BUST.
After eliminating measles back in 2000, it looks like this disease is going to come roaring back with a vengeance in the US thanks to Kennedy being wonky on such a simple vaccination as a solution. Read up on what he did for Samoa which helped lead to the deaths of over 80 people from measles not long ago and then him turning around and saying that it had nothing to do with him-
https://www.nbcnews.com/news/us-news/rfk-jr-samoa-measles-vaccine-crisis-rcna187787
If you have kids or grand-kids, then for the love of Mike get them their measles vaccinations. Over the next four years it is going to be bad but going by past performance, Kennedy will walk away and say that it was not him at fault.
Basic thesis now for consumers: caveat emptor, you’re on your own. Scrutinize risks with care and preemptive mentality: consumer contracts, disease risks, etc.
Soon we will have to test our food like drug users need to test their drugs for contamination.
Almost died of the disease myself, when I was five.
A lot of illegals were getting measles in Chicago and spreading it around to other children. They brought it with them. Even vaccinated children were getting the measles.
Or maybe something to do with the 20 million we let into the country over the last 4 years who brought aby diseases they had with them
Voters Were Right About the Economy. The Data Was Wrong. Here’s why unemployment is higher, wages are lower and growth less robust than government statistics suggest https://www.politico.com/news/magazine/2025/02/11/democrats-tricked-strong-economy-00203464
Thank you. This article says it all.
Socialist governments always lie about the economy because socialism is an intrinsic scam. Politicians who promise to steal from the rich and give to the poor or borrow to print free money have no integrity about anything.
Biden, Obama, and Clinton scams pale in comparison with F.D.Roosevelt’s social security Ponzi scam.
Auto Lenders offer extensions to prevent the loans from going bad? Extensions VERY RARELY save a bad loan. It was a BAD idea 30 years ago and an even worse idea today as there’s no shame or guilt in defaulting in today’s America. There are some laws of lending that are timeless and “You’re first loss is your best loss,” is one of them. Receivables are the opposite of wine, they get worse with age.
The lenders are perhaps playing an extend and pretend game with their own investors and other financing sources.
Agreed. Especially with a depreciating asset like cars. The longer it’s extended the more likely the loan balance exceeds the cars value. At that point any borrower would be crazy to keep paying since they can just give back the car and get another sub prime loan with a much newer car.
“Lenders are using payment extensions to mitigate loans from falling further into delinquency (or more costly repossessions).”
Sounds a lot like what the CRM lenders are doing. Yet another pre-December 2007 sign that bad loans could play a big role in the next recession.