Quarterly Shrinkage in Auto Lending for Subprime Borrowers Highlighted on Prime Time
In the first quarter of 2025, the auto finance industry saw a significant shift towards used vehicles, as 59% of vehicle financing was for used cars, marking a 6 percentage point increase from the previous year [1]. This trend towards more affordable options is a response to growing affordability challenges faced by consumers due to rising prices [3].
The New York Federal Reserve's Quarterly Report on Household Debt and Credit highlights a trend towards prime-risk borrowers in auto loans and leases [2]. Interestingly, borrowers with credit scores of 760-plus were the only credit-score category that increased volume in the first quarter of 2025 compared to a year ago [2].
Despite the shift towards used vehicles, the auto finance industry is also grappling with increasing delinquency rates. The 60-plus-day delinquency rate for all auto loans and leases increased but at a decelerating pace, suggesting a potential peak in delinquencies [1][3][4]. Subprime borrowers face higher delinquency risks, while prime borrowers generally show better performance [4].
The New York Fed defines serious delinquencies as 90-plus days past due, and in the first quarter, serious delinquencies accounted for 4.99% of the total balance outstanding, up from 4.41% a year ago [1]. However, the rate at which auto finance accounts are transitioning into delinquency is leveling off [3].
Auto originations in the first quarter of 2025 were $165.6 billion, essentially the same as the first quarter of 2024 [2]. New-car dealers are not too concerned about credit availability for consumers, according to a separate study from Cox Automotive.
The VantageScore Subprime tier, which consists of borrowers with credit scores below 620, grew from 18.1% to 18.7% between July 2023 and July 2025, indicating more consumers are at risk of repayment challenges [5]. Average car loan interest rates are higher for used cars (11.87%) compared to new cars (6.73%), with rates varying significantly by credit score [2].
The report also notes a potential overlap between households with student loans and households paying off auto loans. With millions of student loans being phased out of government loan forgiveness and now needing to be paid, some households may have less money available for auto loans. This could potentially impact the auto finance industry in the coming quarters.
The New York Fed's Quarterly Report on Household Debt and Credit provides valuable insights into the current state of the auto finance industry, highlighting trends, challenges, and potential areas of concern. As the industry continues to evolve, it will be interesting to see how these trends develop in the coming quarters.
[1] Federal Reserve Bank of New York. (2025). Household Debt and Credit Report. Retrieved from https://www.newyorkfed.org/microeconomics/housing-credit.html [2] Experian. (2025). State of the Automotive Finance Market: Q1 2025. Retrieved from https://www.experian.com/assets/automotive/reports/q1-2025-state-of-the-automotive-finance-market.pdf [3] Cox Automotive. (2025). Cox Dealer Sentiment Index. Retrieved from https://www.coxautoinc.com/industry-insights/research-and-market-intelligence/cox-dealer-sentiment-index [4] Federal Reserve Bank of New York. (2025). Delinquency Trends in Auto Finance. Retrieved from https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci25-1.pdf [5] TransUnion. (2025). Q2 2025 Industry Insights Report. Retrieved from https://www.transunion.com/business/resources/reports/industry-insights-report-q2-2025
- The auto finance industry, in the realm of business and personal finance, is experiencing a shift towards used vehicles due to affordability challenges faced by consumers [1].
- The trend of prime-risk borrowers in auto loans, as seen in the New York Federal Reserve's report, suggests a shift in wealth management strategies for consumers seeking auto financing [2].
- In the sphere of sports, the auto finance industry is confronting challenges related to increasing delinquency rates, particularly among subprime borrowers, who face higher risks of delinquency [4].
- As the industry faces these challenges, education and self-development through resources like the New York Fed's report are essential for understanding upcoming trends and potential opportunities in technology, finance, and lifestyle [6].
