Auto Loan Balances, Debt-to-Income Ratio, and Delinquencies of Subprime & Prime Auto Loans in Q1 2026. How Bad Is it?

Several subprime-specialized dealer-lender chains collapsed, and shares of America’s Auto Mart imploded. Subprime lending is not for the squeamish. But it’s only a small part of auto finance.

By Wolf Richter for WOLF STREET.

Total balances of auto loans and leases outstanding for new and used vehicles rose by $15 billion in Q1 from Q4 and by $43 billion (+2.6%) year-over-year, to $1.68 trillion, according to the New York Fed’s report on consumer credit, based on Equifax data.

But in the five years from 2020-2024, auto loan balances had surged by 23%, despite much lower vehicle sales, driven by the price explosion of new and used vehicles in 2021 and 2022.

How bad is it?

First, we look at the debt-to-income ratio across all households, then we’ll look at delinquency rates by borrowers with prime credit ratings, by borrowers with subprime credit ratings, and overall.

The debt-to-income ratio is a standard metric to evaluate credit risk. For household income, we use “disposable income,” released by the Bureau of Economic Analysis.

Disposable income consists of after-tax wages, plus income from interest, dividends, rentals, farm income, small business income, transfer payments from the government, etc.

But it excludes capital gains, which is where the wealthy make most of their money. Excluded are thereby income from stock-based compensation plans and capital appreciation where billionaires make their billions. And this upper crust of income is excluded.

The auto-loan-to-disposable income ratio in Q1 dipped a hair to 7.17%, the lowest since 2014, except for Q1 2021, when various government payments directly to consumers (stimulus, PPP loans, etc.) distorted disposable income into absurdity.

Delinquency rates of subprime & prime auto loans.

Subprime means “bad credit” and a low credit score. It does not mean “low income.” It means a history of having defaulted on loans, rent, utility bills, etc. The young dentist that got into it over his head and fell behind is a classic example of a high-income borrower with a subprime credit rating. They’ll get it worked out eventually. Subprime is not permanent.

Selling and lending to customers with a history of having stiffed their creditors is a high-risk small subsector of auto retailing, largely handled by subprime-specialized dealer-lenders and specialized lenders.

To make this business work despite the expected losses, dealer-lenders sell the vehicles at fat profit margins and then finance them at high interest rates through their finance subsidiaries, making massive paper profits on both. Periodically, they securitize large batches of their subprime auto loans through the Wall Street machinery, which then sells the resulting Asset-Backed Securities (ABS) to institutional investors. And that worked until it didn’t.

The 60-day-plus delinquency rate of subprime auto loans that have been packaged into ABS has been running at record highs, starting in 2023. The delinquency rate is seasonal, and January is the high of the year. In January 2026, the delinquency rate was a record 6.90%, up by 34 basis points from January a year ago.

The delinquency rate edged down to 6.80% in February, squeaking past February a year ago by 7 basis points, according to Fitch Ratings, which rates these ABS. Fitch has not yet released the March data (yellow in the chart below).

“Prime” auto loans are nearly always in good shape, with a low delinquency rate. The 60-plus-day delinquency rate of prime auto loans that were packaged into prime ABS tracked by Fitch inched up to 0.42%.

Even during the Great Recession, the prime delinquency rate maxed out at only 0.9%. There was a bigger problem in the mid-1990s, when securitizing auto loans was in its infancy and everyone was climbing up a learning curve (blue in the chart).

The 60-plus-day delinquency rate for all auto loans and leases declined to 1.49% in March, according to Equifax (red in the chart).

Unfortunately, the monthly Equifax data only goes back to 2020, the free-money era when delinquency rates dropped to ultra-low levels, and the increase since then is from those ultra-low levels during the free-money era. As monthly data for the years before the pandemic is not available, we lack the comparison to the pre-pandemic normal years.

Subprime is only a small part of auto finance. Of all $1.68 trillion in auto loans and leases outstanding, only about 15% were rated subprime and deep-subprime at the time of origination (Experian data).

The subprime business is very unforgiving when these dealers-lenders take reckless risks – the results of which we’re now seeing.

Last year, a couple of bigger companies involved in this business imploded, most spectacularly Tricolor amid a mushroom cloud of fraud allegations. PE firms got into the subprime dealer-lender business, and some of those chains collapsed.

America’s Car Mart [CRMT], the largest publicly traded subprime-specialized auto-dealer chain, also ran into severe problems, and has been in our pantheon of Imploded Stocks for a while. I featured it here in December 2023 when it began confessing to its issues, and when its stock plunged by over 20% that day to $63 a share, down by 61% from its high in May 2021. And it continued to plunge, as the company has been trying to restructure its operations and get its finances in order.

Today, share of America’s Car Mart traded at around $11 a share, a new low since the depth of the stock market crash in 2008-2009, down by 93% from its high. Taking big risks to lend to subprime-rated buyers that had previously stiffed their creditors is not for the squeamish (data via YCharts):