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A growing number of Americans are falling behind on their car payments, an ominous sign for the U.S. economy as high auto prices and stubborn inflation strain household budgets.
Car loan delinquencies tumbled in the early days of the pandemic as the government sent trillions in stimulus money to American homes and businesses. However, delinquencies have progressively ticked higher as sky-high prices for used and new cars alike forced consumers to take out bigger loans and drain their savings accounts.
At the end of December, about 7.69% of auto debt moved into delinquency — the highest level since 2010, according to New York Federal Reserve data published Tuesday.
«It's a little bit perplexing why we're seeing these increases in the delinquency rates, particularly for certain types of borrowers,» New York Fed researchers told reporters during a call Tuesday morning. «I think the price of cars is one clue that there might be some stress in that space.»
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Rapidly rising interest rates have compounded the pain of higher car prices. (Kena Betancur / VIEWpress / File / Getty Images)
The steady rise in delinquencies comes as a result of both high car prices and steep borrowing costs.
Prices for used and new vehicles surged two years ago as a result of a semiconductor shortage and other COVID-19-induced disruptions in the global supply chain. Although fewer cars were being produced, consumer demand remained strong, driving prices higher.
Prices started subsiding toward the end of
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