More than 7 million people were at least 90 days late on their auto loan payments in 2018. That’s a new record — up more than a million from 2010 after the Great Recession, according to the New York Fed. 
And not only can they not pay their loans — they’re taking on more of them. Auto debt has grown 75 percent to $1.2 trillion since 2009, according to a report from the United States Public Interest Research Group (PIRG) and Frontier group. 
This begs the question, what is causing more of these borrowers to default?
The subprime auto loan bubble
The report from U.S. PIRG and Frontier says loans to people with subprime credit scores — lower than 670 — make up 26 percent of all auto loans. Lenders are giving loans to riskier candidates who will have a tough time paying them back. And because cars are seen as a necessity, these subprime lenders aren’t saying no.
Not only that — the lenders seem like they’re abusing these customers. Here are a few practices the report includes:
- Providing confusing information about interest rates
- Giving loans to people who can’t repay
- Pushing buyers to purchase add ons like insurance products and extended warranties which adds to the loan
But you have other options than purchasing a car with a loan you can’t afford. Instead you could buy an older, used car in cash to avoid the scammy interest rates that could cause you to default on the loan.
When will the next recession happen?
Predicting a recession is like predicting the weather. You know when a storm is brewing, but you’re not exactly sure when and where it will make landfall.
But the recent updates on the auto bubble sound just like the beginning of the Great Recession. Sure, it was mortgages instead of auto loans, but there’s a similarity — people couldn’t pay them back.
The housing market crashed when people started defaulting on their loans — which is exactly what’s been happening.
A Requisite Press report from 2016 found that almost three-quarters of Americans consider new cars and trucks to be unaffordable.  And the average household can only afford to pay for half their car.
Debt.com Chairman Howard Dvorkin says this should be a warning sign of the next recession.
“This tells me the auto bubble will become a problem if it isn’t already one,” Dvorkin says. “After all, if the average American can afford just over half of the average new vehicle, the logical conclusion is that auto loans are going to continue to skyrocket.
“While many experts might see an auto loan crisis as remote; I’m reminded that very few of us predicted the housing bubble. Those who saw it coming (as I did) didn’t realize just how deep it would go.”
Why are people taking on more auto loans?
The real question is: What’s causing the record-setting increase in auto loans? One answer is found buried in a used-car report from a company called Infiniti Research. 
“Cars are no longer seen just as a means of transport; rather they are now a status symbol. This explains how frequently the cars are being bought and sold. Five years back, the ownership cycle of a car was around 7 years. Today the ownership cycle has come down to 4 years, and market analysts believe that by 2021 the period might come down to 3 years.”
It’s not at all surprising that Americans view cars as status symbols. What is surprising is that Americans are falling ever deeper in debt and are still clamoring for more cars more often.
The Infiniti Research study suggests, “Decreasing ownership cycle also means that quality of used cars is rather good, and buying it is a total value for money.”
How to protect yourself from an auto bubble
Protecting yourself for when the bubble bursts is in theory pretty simple: Reduce your debts, increase your savings.
Before even looking into auto loans, consider how much you can actually afford to pay off. That way, when the economy comes crashing down around you, you won’t be stuck with a loan you can’t pay and a car no one else can afford.
And if you already have an auto loan you can’t afford, focus all of your efforts on cutting your costs elsewhere, and put as much income as possible toward that loan. Then, build up your savings so you’ll have a safety net.
For more tips on how to recession-proof your finances, check out Debt.com’s guide to preparing for a recession.
Cameren Boatner contributed to this report.