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What's driving auto loan delinquencies

JUANA SUMMERS, HOST:

Rising prices, rising interest rates, layoffs - well, here's another way to gauge the state of our economy right now - car loans. More and more people are falling behind on their car payments, and the consequences of that deliquency can be swift and severe. NPR's Arezou Rezvani takes a look at why many people are now struggling.

AREZOU REZVANI, BYLINE: Fifty-nine-year-old Kyle Mestas has always loved working as a traffic controller, directing drivers around road construction.

KYLE MESTAS: I can be in the mountains one day. I can be working in downtown the next day. And I'm not stuck in an office. I meet new people constantly.

REZVANI: His $60,000 salary went a long way in his hometown of Denver, Colo. It easily covered his monthly car payments.

MESTAS: It was quite easy, and a lot of times I had actually made extra payments, so I was ahead.

REZVANI: All of that came to a screeching halt in December when Mestas suddenly lost his job.

MESTAS: The timing of getting laid off before Christmas and then going through the holidays, my mother dying, me having to get there - it was just horrendous.

REZVANI: He dipped into his retirement account and burned through his savings to get by. But it wasn't enough. He fell behind on his car payments. Then one recent morning, things went from bad to worse.

MESTAS: It was two weeks ago, and I got up, went outside. And I was like, where's my car?

REZVANI: His Kia Sorento was repossessed overnight, and it's been slow going ever since.

MESTAS: It's been hard, you know, not being able to get around anywhere, or I can't run an errand. So it's been hard.

REZVANI: More and more Americans are falling behind on their car payments. For low-income households, delinquencies are now greater than they were at the peak of the Great Recession. Amy Martin of S&P Global says there are several reasons for this.

AMY MARTIN: Many borrowers - they're getting squeezed with a higher monthly car payment as well as higher food and housing expenses.

REZVANI: The average monthly payment for a new car loan hit a record $780 in January. It's not much less for used cars. As COVID-era federal aid has expired, people's savings have also slumped. Add stubborn inflation into this mix, and people just don't have the money they once used to.

JONATHAN SMOKE: But the good news is we have not seen the corresponding level of default.

REZVANI: That's Jonathan Smoke, chief economist with Cox Automotive. He says while late payments are up, even those who are facing repossession have a pretty good chance of keeping their cars. And that's partly because vehicles are retaining their value better than ever.

SMOKE: The lender has more options to work with the borrower to restructure the loan, to keep them in the car and to help get them out of the situation.

REZVANI: Smoke says there's one other thing that's helped people hang on to their cars - low unemployment. That may actually be what helps Kyle Mestas get back into his Kia. He's landed a new job directing traffic again and starts this month. If he can quickly cobble together the $2,500 he owes through his GoFundMe page and his first paycheck, he'll get his car back.

MESTAS: I'm hoping, and I'm trying.

REZVANI: If he can't, not only will his car be auctioned off - the dent in his credit score will make it harder to get any car down the road. Arezou Rezvani, NPR News, Los Angeles. Transcript provided by NPR, Copyright NPR.

Arezou Rezvani is a senior editor for NPR's Morning Edition and founding editor of Up First, NPR's daily news podcast.