Cars are staying on the road longer, reaching an age where they need substantial repairs or break down. It is a key reason more people are falling behind on their auto loans.
The trend, noted by lenders, consumer attorneys and others, is another example of the long-lasting effects of the pandemic, which transformed the auto industry by making new and lightly used vehicles hard to come by.
Some lenders are getting spooked, tightening their standards so that drivers who want to buy older vehicles have fewer options for getting financing. Americans who already were discouraged by the rapid increase in car prices over the past few years could have an even harder time finding a car they can afford, or one that won’t guzzle up their savings after they buy it.
Destinee Green’s 2013 BMW broke down last year, less than six months after she bought it.
A dealership told her that she needed a replacement engine that would cost $19,000, nearly the same as the car’s price when she bought it. Unable to get to her job in human resources at a healthcare company, Ms. Green, 25 years old, started to miss shifts and got fired. She is now behind on payments on the still broken-down car, and the lender has threatened to repossess it.
“I just felt like I couldn’t win,” said Ms. Green, who lives in the Hartford, Conn., area.
Robert Murphy, a consumer litigator, said he had been getting lots of calls from lower- and middle-income people who are making big monthly payments on cars that don’t even work.
“A fuel pump goes on a vehicle and it’s $2,000,” Mr. Murphy said. “They have to make a decision about whether to pay repairs on a used car because they know there will be additional repairs in the future.”
Many consumers already struggled to pay the large car loans they took out to buy vehicles after prices surged in 2021 and early 2022. They are less likely to keep paying if they also have to foot steep bills to keep the cars on the road. The delinquency rate on subprime auto loans recently rose to its highest level in more than a decade.
The cost to maintain or fix a car is also rising. The U.S. consumer-price index for vehicle maintenance and repair rose 12.5% from a year earlier in February, Bureau of Labor Statistics data shows. The roughly 14% increase in January was the sharpest jump since 1975.
Before the pandemic, households spent an average of less than $600 per car on maintenance and repairs each year, according to the automotive market research company IMR Inc. In 2022, they spent nearly $800 per car on average.
IMR surveys hundreds of car repair shops each month. “People are coming in and saying to just get the car running for as cheap as possible,” said Bill Thompson, IMR’s chief executive.
Car maintenance and repair prices aren’t expected to ease soon, even as overall inflation cools. Auto shops face strong demand against a backdrop of a global microchip shortage and a nationwide mechanic shortage.
Some 19% of used cars that were registered in 2022 were between eight and 11 years old, up from 15% in 2018, according to data from credit-reporting firm Experian PLC. By contrast, 11% were between zero and three years old at time of registration in 2022, down from 14% in 2018.
“We see a lot more units that are older, with higher miles,” said Dean Morrow, who owns and operates Santa Ana, Calif.-based Southern Hills Acceptance, a subprime lender.
Borrowers whose vehicles break down shortly after purchase often stop paying, leaving lenders in a lurch, he said. The large gap between the balance on the loan and the value of the car is often a loss his company has to eat.
If the car breaks down soon after the sale and the borrower stops paying, lenders can try to get the dealership to buy it back, repair it or swap it out for a different car, he said. But otherwise they typically repossess the vehicle and sell it to recoup as much money as possible. Some lenders will try to make the borrower pay the difference, which Southern Hills is starting to do.
Breakdowns have been a growing problem for Mr. Morrow’s firm, which has about 4,000 accounts and roughly $40 million in outstanding loans spread across five Southwestern states. Recently, twice the usual share of loans that default after a few payments were related to mechanical problems, he said.
In February, that included a 2015 Mazda with 110,000 miles whose engine didn’t work and a 2014 Infiniti with 73,000 miles and transmission problems. Each owner had made two payments.
In response, Southern Hills has tightened lending standards. It used to make loans for cars that were up to 10 years old. Now it will only go to eight. It has capped the number of miles at 120,000 for a car and 140,000 for a truck. The company makes loans through dealerships, but has cut off a handful that Mr. Morrow said were selling defective cars.
Auto manufacturers slowed down production of new cars when the pandemic first hit, then ran into difficulty securing auto parts when supply chains broke down. Fewer lightly used cars got resold in the following years, and prices surged for the ones available. To maintain a supply of cars that lower-end buyers could afford, dealers kept older used cars on their lots.
The average price paid for a used car rose 36% over the last three years to about $28,000 in February, according to car-shopping website Edmunds. A 3-year-old car sold for about $30,000 while a 9-year old car sold for less than $16,000.
Some of the older cars might otherwise have ended up in the junkyard. Just under 12 million vehicles were scrapped in 2021, down from nearly 16 million in 2020, according to S&P Global Mobility. As a proportion of total vehicles on the road, it was the second-lowest in 20 years.
With fewer cars funneling into the top of the used-car market, there are more challenges at the bottom. Vaughn Clemmons, who runs a Houston-based repossession company and is president of an industry trade group, said his company was repossessing more cars with more than 100,000 miles on them.
Repossessions are likely to rise above prepandemic levels this year, he said, straining the repo industry and overwhelming the lots where cars are stowed before they go to auction. “The storm is here,” Mr. Clemmons said.
Write to Ben Eisen at ben.eisen@wsj.com and Gina Heeb at gina.heeb@wsj.com