The U.S. subprime auto asset-backed securities (ABS) market, valued at $104 billion, is proving highly resilient and profitable for lenders and bond investors, even as a growing number of subprime car buyers face financial difficulties. An analysis of nearly 3 million loans originated between 2021 and 2023 reveals diverse strategies among major lenders when borrowers fall behind on payments.
Lenders like Exeter Finance LLC and Banco Santander SA, which provide loans to borrowers with credit scores below 570, frequently resort to either rapid vehicle repossession or repeated, costly loan modifications. These modifications often add thousands of dollars in interest charges, temporarily delaying the inevitable loss of the vehicle for the borrower, but still ensuring investor returns.
These subprime auto loans are bundled into asset-backed securities, providing payments to bondholders and allowing lenders to free up capital for new loans. High interest rates and fees on these loans are sufficient to support strong returns for lenders and investors, even as default rates climb. Fitch Ratings reported that the 60-day delinquency rate for U.S. subprime auto loans reached an all-time high of 6.9% in January 2026, surpassing the 2008 financial crisis peak of around 5%. Despite these challenges for borrowers, the system continues to meet investor expectations, often at the cost of consumers losing their vehicles, incurring further credit damage, and retaining significant debt burdens even after making thousands of dollars in payments.
