Used cars were supposed to be the budget option. Instead, the financing behind them is starting to look like the riskiest corner of consumer credit, with longer terms, higher rates, and more borrowers falling behind. A new wave of data shows that the typical used car loan now stacks rising prices on top of steep interest and stretched budgets, turning what used to be a relatively safe loan into something much more fragile.
That shift matters far beyond the dealership lot. When drivers cannot keep up with payments, it hits family finances, ripples through lenders and investors, and eventually feeds back into how easy it is to get a car at all. The numbers coming in for 2025 and early 2026 suggest that used car loans are moving deeper into the danger zone, even as some headline delinquency rates appear to flatten out.
The warning lights on auto debt are already flashing
Before zooming in on used cars, it helps to look at the broader dashboard. A major credit bureau’s latest Consumer Credit Forecast projects that auto loan delinquencies will level off around 1.54% by the end of 2026, which sounds calm on the surface. A separate look at Car performance suggests those late payments, defined as accounts 60 days or more past due, will see little movement this year, a sign that the overall system is not in free fall. Yet that stability hides a more uncomfortable reality: the pain is not evenly spread, and used car borrowers, especially those with weaker credit, are carrying a disproportionate share of the stress.
Researchers tracking the trend say auto loans have quietly climbed the risk ladder over the past decade and a half. A detailed study from VantageScore found that Auto Loan delinquencies have now increased over 50 percent since 2010 across risk tiers and income groups, and its Key conclusions spell out that AUTO LOANS ARE NOW ONE of the riskiest commercial credit products. A companion report highlighted by More Americans and reporter Mary Cunningham at CBS notes that a recent study by VantageScore labeled auto loans “the riskiest credit product,” a sharp shift from their old reputation as relatively safe, collateral backed paper.
Used buyers are paying more for older metal
One reason used car loans are getting shakier is simple: the cars themselves are not cheap anymore. A forecast tied to the Manheim used vehicle value index shows prices holding near historically high levels, with the index sitting around 208.2 in early 2026. Analysts say the overall stability in pricing is a win for potential car buyers on paper, since it suggests no fresh spike is coming. However, used vehicle prices are still expected to increase in 2026 according to Cox, which means shoppers looking at a 2019 Honda CR‑V or a 2020 Toyota Camry are often staring at price tags that would have bought a new compact car a decade ago.
That pricing backdrop collides with the reality that many households are already stretched. A widely cited feature on how They are handling car payments notes that They are both expensive debt traps, with a record number of buyers of both new and used vehicles locked into monthly payments of $1,000 or more. For a family trading into a used Ford F‑150 or a three year old Kia Telluride, that kind of payment can sit right next to rent or a mortgage in the monthly budget. When a used car costs as much as a starter home’s down payment, the financing attached to it becomes far more fragile.
Interest rates on used loans are punishing
Sticker prices are only half the story. The other half is the cost of money, and used car borrowers are paying some of the steepest rates in consumer finance. A breakdown of Average Used Car in January 2026 shows how sharply pricing jumps as Credit Score falls. In the table, a Credit Score between 501 and 600 is tied to an Interest Rate of 19.00%, a level that would look more at home on a store card than on a loan for a 2018 Nissan Altima. That is before factoring in add ons like extended warranties or gap coverage that dealers often fold into the financed amount.
Another analysis of Higher borrowing costs lays out how much more punishing used loans have become compared with new ones. In a table that breaks results down by Credit profile, the Average new car interest rate is significantly lower than the Average used car interest rate, which clocks in at 21.55%. When someone with bruised credit signs a six or seven year contract at that kind of rate, they can easily end up paying more in interest than the car itself is worth, especially if it is a high mileage SUV or pickup that will need repairs long before the loan is paid off.
Longer terms are stretching borrowers thin
To make those high prices and rates look manageable, the industry has leaned hard on longer loan terms. What used to be a standard 60 month contract has quietly morphed into 72 or even 84 months, especially in the used market. A deep dive into why 84‑month car loans are surging notes that the trend is not limited to the new car market. Used vehicle buyers also set a new record, with 6.3% taking on payments above $1,000 in a still expensive market. That share may sound small, but it represents hundreds of thousands of households committing to seven years of four figure payments on vehicles that are already a few years old.
Those long terms create a nasty side effect: negative equity that sticks around for most of the loan. When a driver finances a 2021 Jeep Grand Cherokee for 84 months at a double digit rate, the balance often falls slower than the vehicle depreciates. If they need to trade out early because of a new baby, a job change, or a blown transmission, they discover they owe more than the SUV is worth. That gap gets rolled into the next used car loan, and the cycle repeats, making each new contract riskier than the last for both the borrower and the lender.
Loan‑to‑value ratios are climbing into dangerous territory
Behind the scenes, lenders and dealers are also quietly changing how much of a car’s value they are willing to finance. Reports from inside the industry show that Used car loan to value ratios are reaching new peaks, even as some lenders say they are tightening access. The average LTV for used car originations is creeping higher, with some segments seeing increases of 31% over the same period. In practice, that means more borrowers are financing not just the full price of the car, but also taxes, fees, and add ons, and sometimes even rolling in old negative equity on top.
High LTV loans are especially risky when paired with older vehicles and longer terms. If someone finances 120% of the value of a 2017 Chevrolet Malibu, there is almost no scenario where they are not underwater for years. Dealers may be taking matters into their own hands by structuring deals that push LTV higher to keep sales moving, but that choice shifts risk onto both the customer and the finance company. When the economy wobbles or a borrower’s hours get cut, those thin equity cushions vanish, and repossessions become more likely.
Delinquencies are hitting lower credit tiers hardest
The strain is showing up first where it usually does, among borrowers with weaker credit scores. A segment branded Your Money reports that Americans with lower credit scores are falling behind on their car payments at the highest rate since 2010. That spike is concentrated in subprime and near subprime tiers, where incomes are often less stable and savings cushions are thinner. For these drivers, a used car is not a luxury, it is the only way to get to work, yet the loans attached to those cars are increasingly structured in ways that leave little room for error.
Other analysts are sounding similar alarms. A detailed piece on how Here is why More Americans are falling behind on their auto loan payments, written by Mary Cunningham for CBS, points back to the same VantageScore research that labeled auto loans the riskiest credit product. The study found that delinquencies have risen across risk tiers and income groups, but the sharpest jumps are among borrowers with lower scores who are more likely to be steered into used vehicles with high rates and long terms. When those loans sour, the fallout hits not just the borrowers but also the neighborhoods and local economies that depend on their ability to get to work reliably.
Subprime lenders and investors are feeling the squeeze
The pressure is not limited to households. Companies that specialize in financing riskier borrowers are also starting to sweat. A report flagged as By PYMNTS November describes how Record levels of late car payments are putting pressure on subprime auto lenders, with some struggling to remain in business. When delinquency and default rates climb, these lenders face higher funding costs, tighter warehouse credit lines, and more scrutiny from investors who buy the asset backed securities tied to pools of used car loans.
That stress can feed back into the market in messy ways. As subprime lenders pull back or fail, borrowers with lower scores may find it harder to get approved at all, pushing them toward buy here, pay here lots with even harsher terms. At the same time, mainstream banks and credit unions watch the same data and quietly adjust their own appetite for risk. If enough players decide the juice is not worth the squeeze, access to financing for older vehicles could tighten just as prices remain elevated, leaving a lot of would be buyers stuck on the sidelines or hanging onto unreliable cars longer than they should.
Big payments are crowding out other essentials
For many households, the problem is not just that used car loans are risky on paper, it is that the monthly payment is swallowing too much of the budget. A widely shared analysis of how They’re both expensive debt traps notes that a record number of buyers of both new and used vehicles are locked into monthly payments of $1,000 or more. The piece describes families who are choosing between keeping the car and keeping a roof over their heads, a tradeoff that used to be associated with luxury models but now shows up on loans for mainstream SUVs and trucks.
Those big payments are often the product of every trend already described: high prices, high interest rates, long terms, and aggressive LTVs. When a borrower with a middling Credit profile signs for a used 2022 Toyota RAV4 at an Average used car interest rate of 21.55%, as laid out in the Average rate table, the math almost guarantees a heavy monthly bill. Add in insurance, gas, and maintenance, and the total cost of keeping that used car on the road can rival a mortgage in some parts of the country.
Why the risk is shifting, and what buyers can do now
Put all of this together and the pattern is clear: used car loans are absorbing more of the system’s risk even as headline delinquency rates appear Flat. Prices tracked by the However stable Manheim index remain high, interest costs measured in the Credit Score tables are punishing for anyone below prime, and more borrowers are stretching into 84 month terms that keep them underwater for years. At the same time, research from Key VantageScore and coverage by CBS and Americans show that auto loans, especially in the used segment, have become one of the riskiest products in the consumer credit toolbox.
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