Feb 10, 2025
The auto lending industry is facing a pivotal moment. Shifting consumer demographics, advancing technology, and persistent economic pressures present challenges — but also opportunities for lenders who are ready to adapt.
Data from the National Credit Union Association shows that, as of the third quarter of 2024, the auto loan delinquency rate for federally insured credit unions increased by 11 basis points year-over-year, reaching 90 basis points. By Q4 2024, that figure climbed to 97 basis points, marking a continued rise in borrower distress. Meanwhile, the net charge-off ratio for all loans among federally insured credit unions rose to 78 basis points in Q3 2024 — an increase of 22 basis points from the previous year — before reaching 85 basis points in Q4, the highest level in over a decade. Similar mid-year data banks showed a net charge-off rate for auto loans of 1.20%, a significant jump from the long-term bank average of 0.65%.
This uptick highlights mounting concerns about creditworthiness across the market. Banks and credit unions have responded by pulling back from auto lending with negative auto loan growth over the last three quarters. Broader factors like affordability constraints, increased fraud risks, and changing borrower preferences are reshaping the landscape. As vehicle prices, on lot supply and borrowing costs are stabilizing, we believe there is ample opportunity for lenders to return to auto lending – with the right tools and perspective. Below, we explore four key trends shaping auto lending in 2025 and how lenders can navigate them effectively.
Affordability Remains Industry’s Biggest Challenge. Affordability entering 2025 remains perhaps the most critical issue for borrowers and lenders alike. Even though new and used interest rates have stabilized, the median weeks of income required to purchase a new vehicle is 38.2 weeks, according to Cox Automotive/Moody’s Analytics Vehicle Affordability Index, which is still >10% higher than the pre-pandemic measure. High inflation and rising living costs have kept new vehicle prices high, with the average new vehicle retail price exceeding $48,000, according to Kelley Blue Book. Used vehicles, while more accessible, aren’t immune to affordability pressures. Monthly payments for near- and non-prime borrowers purchasing a used Ford F-150 have increased by 28% since the start of the pandemic and by 3% since the Federal Reserve began raising interest rates, according to AutoCreditInsight.
Broader data beyond a traditional credit score is needed to assess risk and price auto loans properly. Lenders need to align their offerings with borrowers’ realities, particularly in the used vehicle market. Flexible loan terms and risk-based pricing strategies that incorporate advanced lending tools can help address affordability while ensuring portfolio performance.
Increasing Fraud Demands More Advanced Solutions. The sophistication of fraudulent activity in the auto lending industry continues to escalate. Synthetic identity fraud has grown by 98%, according to Point Predictive, and the financial impact is staggering, with losses estimated at over $7.9 billion. Fraudulent practices, including income misrepresentation and fake employers, expose lenders to significant risk.
To combat these threats, lenders must integrate advanced fraud prevention and detection tools. Solutions like Lenders Protection™, which is now integrated with Point Predictive, enhance security, reducing stipulations like proof of income while streamlining the lending process. These innovations protect lenders from losses while fostering trust with borrowers.
Borrower Demographics and Preferences Are Changing. According to TransUnion. Millennials and Gen Zers are rapidly shaping the auto market, with 31% of Millennials planning to purchase a vehicle between late 2024 and early 2025. However, these younger borrowers often have thin credit files, which can limit their access to traditional lending options. Despite this, they exhibit strong potential, with many moving up credit tiers within just a few years.
Learn more about Millennial and Gen Z borrowers in Open Lending’s report with TransUnion – Financing the Future: Millennial and Gen Z Consumer Borrowing Habits and Credit Outlook
Lenders must adopt tools that evaluate borrowers holistically, leveraging alternative data to assess creditworthiness beyond traditional credit scores. Lenders Protection™ is equipped to address this need, helping lenders reach creditworthy consumers who might otherwise be overlooked.
Digital Transformation Is No Longer Optional. Our 2024 Lending Enablement Benchmark Report found that 86% of financial institutions have adopted digital tools, a significant jump from 65% in 2023. These tools improve efficiency and give lenders the speed and agility to make better, faster decisions.
In an industry where rapid decision-making is becoming a competitive necessity, lenders must accelerate their processes to keep pace with evolving consumer expectations. The growing demand for seamless, end-to-end digital experiences (like Amazon’s recent Hyundai pilot) signals a shift toward instant, frictionless vehicle financing. To stay competitive, lenders must streamline approvals, leverage rapid scoring, and return results in real time. Platforms like Lenders Protection™ enable lenders to process borrower data quickly, deliver fast decisions, and provide insurance-backed confidence, ensuring speed and security in a fast-moving market.
Affordability pressures, fraud risks, shifting borrower demographics, and the increasing demand for advanced tools are reshaping the market. Lenders must embrace change with innovative solutions that address immediate concerns and long-term industry shifts to maintain an edge.
Ultimately, 2025 demands lenders respond to the challenges and anticipate the shifts ahead. Whether it’s tackling affordability, safeguarding against fraud, or meeting the expectations of a younger, tech-savvy borrower base, success will require a blend of adaptability, innovation, and strategic partnerships.
Look no further than the latest example of Amazon-Hyundai’s online pilot, which is a perfect example of this broader shift toward faster, more seamless digital transactions. This shift also increases expectations for speed and convenience in financing. Lenders can stay ahead of these evolving demands by leveraging advanced lending enablement solutions and prioritizing rapid, frictionless approvals, positioning themselves to thrive in a rapidly changing landscape.
The road ahead will always be complex, but with the right tools and strategies and a willingness to adapt to those tools, it can lead to growth and opportunity. Contact us today to learn how we can help you and your institution navigate 2025 and beyond.
ShareAll fields required
"*" indicates required fields
