Subprime Auto Loans Just Hit Their Worst Delinquency Rate in 32 Years. Here's What It Means for Lenders.

Making a loan is a big decision for a lender. The lender must assess the likelihood of repayment in a timely fashion. The higher the loan's risk, however, the higher the interest rate the lender can charge. So there are trade-offs that have to be made. The auto loan space has a history of companies taking on too much risk. That is a problem for investors today, as subprime auto loan delinquency rates are high.

Be careful how much risk you take on

When you buy a stock, you become a part-owner of the business. This is why it is so important to understand the companies you invest in. If you don't fully understand what the business is doing, you can't properly assess the risks and potential rewards of the investment. This is particularly important for companies that make auto loans.

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Subprime auto lenders can make huge profits when times are good because of the shockingly high rates they can charge customers. But during a recession, their customers often stop paying. And that can cause deep financial strain for subprime auto lenders. Often, a recession isn't even necessary; it can just be an economic soft patch.

For example, subprime auto lenders American Car Center and U.S. Auto Sales both ran into trouble in 2023. In 2025, Tricolor Holdings hit the skids, though it was accused of fraud, so other factors were at play. And in mid-2026, America's Car-Mart (NASDAQ: CRMT) was forced to work with its lenders to help it survive. The 60-day delinquency rate, which rose to a historical high at the start of 2026, is not a good sign for this niche of the auto-lending industry.

The subprime auto loan delinquency rate began 2026 at around 6.8%. The 60-day delinquency rate remains above levels seen during the Great Recession. Investors need to pay close attention to lenders such as OneMain Holdings (NYSE: OMF) and Credit Acceptance (NASDAQ: CACC).

What's the situation with high-risk loans?

OneMain Holdings 30-day delinquency rate was 5.37% in the first quarter, down from 5.85% in the December quarter, but up from the prior year's 5.16%. Charge-offs rose from 7.83% to 8.02% year over year. The company isn't exactly falling off a cliff, but the credit situation appears to be weakening. Credit Acceptance's first quarter 2026 update showed that loans made between 2021 and 2024 have been underperforming expectations. Even 2026 loans haven't been performing as well as hoped.

This is where investors should step back and consider a pivot. Bank and credit card processor Capital One Financial (NYSE: COF), for example, works with lower-credit-quality customers, but it is more stringent about who it lends to. It issues credit cards and makes auto loans, with a combined 30-day delinquency rate of 3.24%. That was down from the December quarter's 3.59% and from the same quarter of 2025, when the rate was 3.51%. To be fair, Capital One's 30-day delinquency rate on autoloans is higher, at 4.21%, but that's down from 5.23% in the fourth quarter of 2025 and 4.93% in the year-ago period. In other words, Capital One's business is holding up much better, likely thanks to its more discerning lending approach.

It is time to be prudent

Most investors should probably avoid businesses that make car loans to financially troubled customers. That's true most of the time, but particularly true right now, with delinquency rates rising. However, if you are interested in the sector, likely thanks to the higher interest rates that can be charged to customers, you should probably err on the side of caution. Capital One is a way to get exposure to lower-quality customers without betting the bank on the highest-risk niche of the auto lending space. Notably, the delinquency rate for higher-quality auto loans is historically low.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Capital One Financial. The Motley Fool has a disclosure policy.