The soaring cost of cars and insurance is pushing millions of Americans to the financial brink — and Wall Street is worried it could be the spark for the next recession.
Drivers owe $1.66trillion in car loans — a bigger burden than federal student loan debt or credit cards, and up 20 percent since 2020.
At the same time, years of high inflation have drained household budgets, leaving less money for everyday expenses.
That squeeze is showing up in more missed car payments.
‘Delinquencies, defaults, and repossessions have shot up in recent years,’ the Consumer Federation of America warned in recent analysis.
‘It looks alarmingly similar to trends that were apparent before the Great Recession.’
Back in 2008, banks had been approving car and home loans to poor families who could barely cover monthly payments.
It was this pile of risky loans brought down the economy when interest rates jumped and families couldn’t cover higher payments. That year, 3.1 million homeowners lost their homes.
2008’s Great Recession sent thousands of families out of their homes – and forced companies like Lehman Brothers to collapse in spectacular fashion
Erin Witte, the director of consumer protection, said American families are in an ‘economic pressure cooker’ in 2025
Companies that relied on those customers — including Lehman Brothers, General Motors, Washington Mutual, AIG, and Bear Stearns — collapsed.
In 2008 alone, 3.1 million homeowners lost their homes.
The turmoil also led to the decline of retailers like Sears, Circuit City, and Blockbuster, which all shuttered hundreds of stores and declared bankruptcy.
Now, record prices for new cars, used cars, and vehicle insurance have burdened drivers, raising warnings over similarly overstretching consumers.
Today, the average American spends $49,856 on a new car, saddling them with $745 monthly payments — with nearly one in five paying over $1,000 a month. Used car prices are also at highs, with the average $25,393. Insurance premiums in the US are $194 each month.
Those costs pushed 1.6million drivers into repossessions last year, the highest rate since the Great Recession.
The CFA says this worrying trend is a ‘canary in the coal mine’ for the broader economy.
‘Families are in an economic pressure cooker,’ Erin Witte, the director of consumer protection at the agency, said.
Dozens of retailers – including Sears, Circuit City, and Blockbuster – all shut down in the economic crisis of 2008
Tara Mikkilineni, a senior fellow at CFA, warned of an ongoing ‘debt spiral’
‘Expensive car loans are rapidly jeopardizing their ability to avoid disastrous outcomes like delinquency and repossession.’
To keep up with high prices, shoppers are taking on more risk in the market.
The prevalence of seven- and eight-year auto loans has increased, a classic sign of financial strain.
While the longer loan terms cut down on monthly payments, owners will end up paying thousands more on the car with continued interest.
Inside the price hikes… and why they won’t get better
Since the pandemic, car companies have had to increase the price of their cars to keep up with demand.
Between 2020 and 2023, automakers couldn’t get their hands on enough computer chips to build more vehicles.
The chips — which control tons of electronic equipment commonly found in cars like power windows, adjustable seats, infotainment screens, and digital dashboards — suddenly became rare during factory shutdowns.
Dealership inventory dried up, right as Americans were cashing their stimulus checks from the Federal government.
Heightened demand and lower supply made dealerships increase the cost of new cars. That also made used cars more competitive for thousands of Americans who were looking for lower-priced deals.
Today, car prices are reaching record highs, while insurance is also spiking
Plus, cars keep introducing new standard safety tech, including cameras, sensors, and lasers built into the bumpers.
That tech — which oftentimes must be recalibrated during crashes and minor events — has become a headache for mechanics to fix, leading to higher insurance costs.
Last month, the price of vehicle repair saw a 15 percent inflation spike.
With President Donald Trump’s tariffs, there isn’t much of a silver lining for cash-strapped buyers.
Ford tacked $2,000 onto the price of their Mexican-made cars in May. Subaru issued a 16 percent price hike on a base model for 2026. Volkswagen followed suit.
‘Business is not sustainable longer term without significant price increases,’ Mark Templin, Toyota’s chief operating officer for North America, said in May.
‘And the industry already has an affordability problem.’
Meanwhile, dealerships are saying they’ve also been tacking on price increases to their products.
In August, a survey of 1,000 dealership managers found that 82 percent had reported increasing prices on their lots, according to SuretyNow.
‘Buying a car should be a way for families to achieve economic success,’ Tara Mikkilineni, a senior fellow at CFA, said.
‘But it is increasingly becoming an unaffordable burden that pushes consumers down into a debt spiral.’
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