The $1.7 trillion US auto loan market is showing serious cracks, and that's bad news for borrowers, lenders, and potentially the wider economy.

New and used cars have gotten much more expensive since before the pandemic, so people are buying older cars and stretching loans out longer just to afford the monthly payment. That lowers the bill short-term but leaves people owing more than their car is worth for years, stuck with cars that cost more to fix and are harder to sell.

Loans made in 2021 and 2022, when pandemic stimulus temporarily boosted people's credit scores, are now falling behind at much higher rates than normal. A growing share of subprime auto loans are seriously late on payments, and some borrowers won't even pay off their car until it's over a decade old.

This echoes the 2008 housing crash: banks and other lenders package these car loans into bonds sold to investors like pension funds and insurers, so rising defaults could ripple through the financial system, not just hit car buyers. With 40% of Americans unable to cover an unexpected $400 expense, even a couple hundred extra dollars a month in car payments can push people into losing their vehicle, and with it their way to get to work.

Outlook: Watch for rising delinquencies and losses at lenders and bond investors — if defaults keep climbing, it could tighten lending and ripple into the broader economy the way mortgage defaults did in 2008.