30th September 2026
America's car-finance market is beginning to attract attention for a reason that will sound familiar to anyone who remembers the subprime mortgage crisis of 2008.
People are borrowing large sums to buy increasingly expensive vehicles. Loan terms have lengthened, monthly payments have risen and some borrowers are finding that the value of their cars is falling faster than the debt attached to them.
Britain has many of the same ingredients.
That does not mean another financial crash is on the way. But it does mean that the American experience is worth watching because the car has become one of the biggest purchases made by households, and increasingly it is a purchase made with borrowed money.
In the United States, auto loans outstanding reached about $1.71 trillion in the second quarter of 2026, according to the Federal Reserve Bank of New York. A further $211 billion of new auto loans were originated during the quarter. The proportion of auto-loan balances moving into serious delinquency, meaning at least 90 days overdue, was 3%, compared with 2.93% a year earlier.
TransUnion provides another indication of the pressure. Average monthly payments on American new-car loans have risen 38.7% since 2019, while used-car payments have risen 39.6%. It says affordability remains a significant challenge even though interest rates have moderated and loan terms have lengthened.
That is where the comparison with Britain becomes interesting.
Britain has its own motor-finance problem
The UK motor-finance industry is enormous. The Financial Conduct Authority says a record £41 billion was lent through motor finance during 2025, 6% more than in 2024.
There have also been five public securitisations of UK automotive loans since September 2025. Securitisation means loans can be bundled together and sold to investors, spreading the financial exposure beyond the original lender.
Britain also has a particularly unusual problem hanging over the industry.
The FCA is dealing with the fallout from motor-finance commission arrangements in which customers were not properly informed about certain payments between lenders and brokers, including car dealers.
The regulator's proposed compensation arrangements could eventually involve millions of agreements and billions of pounds of compensation. The FCA's current assessment is that the overall impact on new-car finance should be limited, although it acknowledges that there could be short-term effects in the used and subprime markets.
This is not the same problem as America's rising delinquencies, but it demonstrates just how large and complicated the British car-finance system has become.
The monthly payment can hide the real cost
There is another similarity between the two countries.
A car advertised at £30,000 or £40,000 can look much more affordable when the conversation becomes about whether someone can manage the monthly payment.
That is particularly important with PCP finance.
A customer may be able to manage the monthly payments while still owing a substantial amount at the end of the agreement. If the car's value has fallen, there may be less equity available to put towards the next vehicle.
The result can be a cycle in which one loan effectively follows another.
That does not make PCP inherently dangerous. It does mean that the affordability calculation is more complicated than simply asking whether the monthly payment fits into the household budget.
And it is particularly relevant when household budgets are already being squeezed by food, energy, insurance and fuel costs.
Britain's subprime market is smaller than America's
The FCA's own analysis is useful here because it distinguishes between prime and subprime borrowers.
Most finance for new vehicles is taken by prime consumers. Subprime borrowers have lower creditworthiness and can face higher interest rates, fewer financing options and a higher overall cost of borrowing.
That is an important difference from the American market.
It also means we should resist the temptation to call every problem with car finance a new subprime crisis.
There is currently no evidence that Britain's motor-finance market is about to produce a repeat of 2008.
But financial problems rarely arrive as a single dramatic event. They can develop through a series of smaller pressures.
[/b]What would make it serious?
The danger would be if several things happened together.
Unemployment could rise. Household incomes could come under further pressure. More people could fall behind on car payments. Repossessions could increase. Used-car prices could fall, leaving more borrowers owing more than their vehicle is worth.
Lenders could then become more cautious.
That could make finance more expensive or harder to obtain, reducing the number of people able to buy cars. Falling demand could put further pressure on used-car values.
That creates a potentially unpleasant circle.
It is worth remembering, however, that the Bank of England currently describes British households as relatively resilient and says there are limited signs of widespread financial distress. Consumer-credit arrears have risen somewhat, but remain low by historical standards.
So this is a risk to watch rather than a crash that can currently be declared.
Why Caithness should care
It might seem like a problem for London and the big finance companies.
It isn't.
In Caithness, a car is often less of a luxury than a necessity. Getting to work, taking children to school, travelling to hospital appointments, reaching Thurso or Wick and accessing services can depend on having reliable transport.
If car finance becomes more expensive or difficult to obtain, the consequences could reach well beyond the financial sector.
The same applies to garages, dealers, taxi operators, tradespeople and businesses that depend on vans and other vehicles.
A credit squeeze could therefore become another cost-of-living problem.
The lesson from America is not that Britain is heading for another 2008.
It is that when people have to borrow ever larger amounts simply to buy an ordinary necessity, the financial system becomes increasingly dependent on households continuing to make those payments.
That is something worth watching before the warning lights turn into something more serious.