The escalating expenses associated with cars and insurance are edging millions of Americans closer to financial instability, causing concern on Wall Street that this could potentially trigger 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. 

Previously, a surge in risky loans impacted the economy when interest rates rose, leaving families unable to manage higher payments. During that period, 3.1 million homeowners faced foreclosure.

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 crisis also precipitated the decline of retailers like Sears, Circuit City, and Blockbuster, leading to the closure of hundreds of stores and eventual bankruptcies.

Now, record prices for new cars, used cars, and vehicle insurance have burdened drivers, raising warnings over similarly overstretching consumers. 

Currently, the average American spends $49,856 on a new vehicle, translating into monthly payments of $745, with almost 20% paying over $1,000 per month. Even used car prices have surged, averaging $25,393. Insurance premiums in the U.S. now average $194 per 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. 

‘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. 

Microchips, which are integral to many car features such as power windows, adjustable seats, infotainment systems, and digital dashboards, became scarce during factory closures.

Dealership inventory dried up, right as Americans were cashing their stimulus checks from the Federal government. 

This scarcity, coupled with increased demand, prompted dealerships to raise the prices of new vehicles, making used cars a more appealing option for many Americans seeking more affordable alternatives.

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.’