Industry Study
2026 Auto Loan Industry Study
Summary:
The U.S. auto loan market expanded steadily through 2023, driven by prime borrowers financing higher-priced vehicles at rising rates, though origination volumes and delinquency trends signal a market entering a more cautious phase. Younger borrowers are feeling the strain most acutely, with those under 30 significantly more likely to fall into serious delinquency than any older age group.
Despite a temporary slowdown in vehicle sales in 2020, the U.S. auto loan industry has continued its decade-plus expansion through 2022 and 2023. The same restricted supply that has slowed down sales has helped keep prices high, to lenders’ benefit. As a result, some of the numbers still look promising for auto lenders. But a lot of uncertainty lies ahead. Here are some key takeaways to consider.
Key takeaways
- Vehicle prices have stabilized, yet total consumer auto loan debt climbed to $1.51 trillion in the third quarter (Q3) of 2023, marking a 5.2% increase or $108 billion compared to the same period in 2022.
- Total vehicle sales in 2023 were 16.17 million, an increase from 2022’s 14.05 million.
- Overall loan balance rises 4% YOY in super prime and subprime categories.
- Auto loan rates are rising but are still historically low when compared to the rates of the 1980s.
- Elevated prices and interest rates have resulted in a year-over-year increase in average monthly payments across all credit tiers.
- The average credit scores of borrowers are at historical highs: 738 for new and 675 for used vehicles.
- The average new auto loan amount at finance companies dropped to $38,587 for new vehicles and $24,597 for used vehicles.
- Year-over-year growth in average used auto loan amount at finance companies rose to 15.39%.
- As of Q4 2023, auto loans became the second largest source of consumer debt ($1.607 trillion), briefly surpassing student loans. Note: subsequent data shows student loan balances have since overtaken auto loans.
- The percentages of auto loans to less risky prime and near-prime borrowers have grown, while riskier loans to lower-credit-score borrowers have shrunk.
- Auto loan volume and originations are lower than the previous year.
- The average credit score for borrowers has never been higher; however, the average auto loan balance soared in 2023 Q3.
- The total loan amount is trending upwards. In other words, demand for auto loans is also on the rise.
- The upward trajectory of delinquency rates persists, with Q4 2023 figures surpassing those of 2020. This trend has been steadily climbing since Q3 of 2020.
So, what is the current condition of the U.S. auto finance market? Are we anticipating further growth in the industry, or might we be approaching a downturn? What developments can we anticipate within the sector in 2024?
We will thoroughly examine the inner workings of the auto financing sector in this report, analyzing outstanding balances, originations, and delinquency rates across key demographics.
But first, let’s take a step back and see how the auto loan industry fits in the economy as a whole.
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The auto financing industry and the U.S. economy
The automotive loan sector gained significant prominence through 2023, ranked as the second largest consumer debt category after mortgages — briefly surpassing student loans. It has become a key driver of the U.S. economy. Consider this. In 2023 (Q4), Americans bought 16.17 million vehicles. Auto companies and suppliers are responsible for 3% of the U.S. GDP. In short, it is the largest manufacturing sector — not to mention employer — in the United States. Car ownership remains approximately 65%; however, over 90% of the population possesses at least one vehicle, and more than 91% of commuters rely on cars. This underscores the industry’s significance as a key indicator of productivity and growth.
These production levels are possible thanks to auto loans which improve the condition of the workers with immediate ownership of the vehicles.
Over 79% of new cars are financed
It’s not just new cars, either. Although you may expect new cars to be financed, over 40% of used cars were bought with a loan. This dependence on financing is nothing new. The percentage of new car purchases using loans has not changed much in the last 10 years. And financing for used car purchases rose slightly in 2022 after dropping in 2021. Data suggests that most borrowers are interested in full ownership of the automobiles.
Over 22% of new vehicle sales are leases
It’s easy to forget the importance of leasing in the auto industry, particularly in the new auto sales sector. Consider this. Even after a significant drop in 2022, 22.48% of all new vehicles were leased in 2023. While this is a significant amount (one in every five vehicles), it does mean a drop from the 29% high (nearly one in every three vehicles) seen in 2018–2019 and 2015–2016. 2023 leases recorded a rise compared to 2022. Borrowers are less interested in leasing because of the risks associated with wear and tear, hidden costs, and lack of control over the vehicle.
Auto loan debt surpassed student loans in the United States — as of Q4 2023
In Q4 2023, auto loan debt rose to comprise 9.2% of total household debt, briefly surpassing the 9.1% share held by student loans. Mortgage debt remained the largest component, constituting 70% of total household debt.
The total auto debt surged from $1.50 trillion in Q2 of 2022 to $1.61 trillion in Q4 of 2023, marking an increase of $0.11 trillion, or $111 billion. Given that continual auto loan payments contribute to reducing the overall auto debt balance, it implies that auto loans originated during this period surpassed $111 billion.
Auto loans are the second most common source of credit
More than 107 million auto loan accounts were recorded in the 4th quarter of 2023 in the U.S. Credit cards are the only source of credit with more accounts. However, auto loans typically have much larger balances than credit card accounts.
Auto loan debt briefly became 2nd largest after mortgage
In its Average U.S. Consumer Debt and Statistics, Experian found that vehicle loans and leases outstanding had soared to a then-record high of $1.51 trillion in Q3 2023, and auto loan balances had grown by 7% compared to the same period of the prior year. By Q4 2023, auto debt ($1.61 trillion) had briefly exceeded student loan debt ($1.60 trillion), according to the Federal Reserve Bank of New York’s Q4 2023 Household Debt and Credit report. Note: as of mid-2025, Experian data shows student loan balances ($1.61 trillion) have since overtaken auto loan balances ($1.56 trillion). Federal Reserve data, which does not include leases, also shows continued auto loan growth through 2023.
The average auto loan balance is gradually increasing
Experian’s State of the Automotive Finance Market report recorded the average auto loan balance at $23,792 in Q3 of 2023, up from $22,612 in the same period in 2022.
Stability in vehicle prices and market conditions improved the affordability of vehicles in 2024
Weeks of median U.S. income needed to purchase a new light vehicle
Based on historical records, the acquisition of light vehicles became more expensive from 2020 until 2023, requiring a more significant portion of weekly income for purchase. However, post-March 2023, affordability improved. In February 2024, the median number of weeks of income required to purchase an average new vehicle fell to 37.1 weeks, down from over 41 weeks in March 2023.
Demand for auto loans recovering after a 10-year low
Auto loan demand is down. Granted, a quarterly or semiannual chart with 2023 data provides a more mixed picture due to seasonal fluctuations.
Annual figures, including all data through the end of 2023, show a clear downward trend over the last decade but recovering in the first quarter of 2024.
Banks report a lower interest in auto loans, continuing a decade-old trend. These statistics are based on a survey the Federal Reserve performed on 69 banks. In addition, according to the upcoming expansionary policy, surveyed banks are expected to relax lending standards in the months ahead.
Lenders, particularly banks, are relaxing credit requirements
Domestic banks have started to ease their tightening measures. In the second quarter of 2023, these measures peaked at 27.5, but they gradually decreased, reaching a low of 6.3. This shift indicates a more favorable lending environment, which could lead to increased lending and investment in the auto industry.
Lenders, especially banks, are relaxing credit which will increase the flow of credit, accelerate the business cycle, and create employment opportunities.
This forces captive lenders, such as Ford Motor Credit and Honda Financial Services, to loosen credit requirements to maintain sales growth. However, captive lenders do not have the highest ratio of subprime borrowers.
Auto loan rates are rising but still historically low
Auto loan rates have demonstrated relatively stable volatility, especially from 2013 to 2022. They have fluctuated more than credit card interest rates but less than mortgage rates. Historical data for 48-month auto loans dates back to 1972, showing rates ranging from 17.36% in 1981 to 4.00% in 2015. Over the last decade, interest rates have generally remained within the range of 4.00% to 5.5%. However, experiencing an 8% surge in the third quarter of 2023 is considered significant.
Interest rates started rising substantially in 2023, but are still well below the rates of the early 80s. A perfect storm of high-interest rates, higher vehicle prices, and modest growth in loan term length has triggered a hike in the average monthly payments across all credit tiers.
All 72-month, 48-month and 60-month auto loan rates are trending upwards
Auto loan rates have been increasing since the first quarter of 2022, mainly due to post-pandemic inflationary pressure and heightened demand for automobiles.
Most auto loan lenders offer terms spanning from 24 to 72 months. In the second quarter of 2023, average rates for 72-month and 60-month auto loans surpassed those of traditional 48-month auto loans. The Federal Reserve cut rates three times in 2024, which put downward pressure on auto loan rates heading into 2025.
Prime borrowers, more expensive cars, and longer terms drive auto loan growth
Despite the drop in year-over-year growth, auto loan debt continues to rise. The growth is driven mainly by prime borrowers paying more than ever for new and used cars.
Over 69% of auto debt is attached to prime borrowers
According to the Q4 2023 Experian Automotive report, prime and super-prime borrowers contributed to more than 69% of the auto loan balance.
Borrowers are unevenly distributed across lenders based on their credit profiles. For instance, consider auto finance companies, also referred to as non-bank financial companies (NBFCs). Approximately half of the outstanding loans held by auto finance companies originated from subprime borrowers. In contrast, small banks and credit unions have only 14% of their auto loan balances associated with subprime borrowers.
The average loan amount financed for both new and used vehicles is rising
On average, Americans borrowed $38.5k for new cars and $24.5k for used cars in Q3 of 2023, or about $63k total. That represents a 42% hike over the $42.5k financed 10 years ago.
The average maturity for vehicles is 65 months for new and 66 months for used
In 2023, the average maturity was 65 months for new vehicles, down from 66 months in 2022. That is over 5 months more than the average term in 2011. The average auto loan maturity for used cars grew to 66 months in 2023, compared to 60 months in 2015.
Average finance rates for both new and used vehicles are on the rise but expected to decline
In the second quarter of 2023, the average finance rate for new vehicles stood at 6.73%, marking an increase from 5.47% in the corresponding period of 2022. For used vehicles, a rate of 15.47% was recorded in Q2 2023.
Auto loan originations
Loan origination data tells us how many new auto loans were added to the auto financing market within a given period. This helps us identify new trends in the auto financing markets. The origination data below includes both auto purchase and auto refinancing loans.
The auto loan origination trend is on a decline in 2023
Growth in the auto loan industry started to stall in 2017. In 2019, originations continued to plateau until mid-2021 when the downfall started. The lack of growth and the concerning increase in auto loan delinquencies — more on that below — may signal 2019 entry into the late stages of the U.S. economy’s business cycle. However, not all states were hit equally. In some states, lenders were still reporting solid growth.
Year-over-year auto loan volume by state increases moderately among 50 states
In dollar terms, Texas is leading with $29,164 while other states show more moderate increases in auto loan volume.
Auto loan originations in a downward trend for all age groups since 2022
After the first quarter of 2022, auto loan originations declined for all age groups, particularly those between 18 and 60. Age groups of 60–69 and 70+ recorded stable positions.
The downward trend is notable for younger generations who are at greater risk of default.
Auto loans by credit score
For years, auto loan originations have grown among buyers of all credit scores. This changed in 2019.
Buyers with great credit scores are driving the growth
Buyers with credit scores above 760 were responsible for 33% of the $314 billion in auto loan originations from Q2 2022 to Q4 2023, according to the Federal Reserve Bank of New York. Subprime borrowers, on the other hand, were responsible for only 17%. Nevertheless, auto-loan participation is at a record high. So there are still more subprime borrowers than ever before. This is particularly concerning when you look at the delinquency rates among subprime borrowers.
Larger banks are also relaxing tightening standards after the second quarter of 2023
Following the Federal Reserve’s three rate cuts in 2024, the auto industry showed positive signs. The tightening index fell to 7.1% in the first quarter of 2024, down from 30.4% in the second quarter of 2023 — a promising development for the economy and the auto loan industry.
The median credit score for auto loan borrowers was recorded at 720
In Q4 2023, the median credit score stood at 720, which falls within a favorable range. Meanwhile, the 25th percentile score was 649 and the 10th percentile slightly declined to 586.
Auto loan market share by lender type
We can learn a lot about the auto financing market by looking at which sources of credit borrowers are using and the changes in market share over time.
Banks and captive lenders still control the lion’s share of total auto financing
A large rise in captive share was recorded in the third quarter of 2023, particularly in new financing, accounting for above 61%. Credit unions led in used financing at 29.59%.
Auto balance climbed across all credit score ranges
The largest year-over-year change was recorded in the poor credit score range (+8.8%), while the exceptional credit score range registered +6.5% YOY growth. The good, very good, and fair credit ranges rose 4.8%, 4.8%, and 4.5% respectively in Q3 2023 compared to Q3 2022.
Banks
Banks are still the biggest players in auto financing, but they have lost ground to credit unions, captive lenders, and auto finance companies over the last decade. Banks have backed away from the auto finance sector in favor of markets with wider margins. In the process, they have tightened their credit requirements. So qualifying for an auto loan with a bank can be a challenge.
Banks typically offer very competitive loan rates and have state-of-the-art online platforms. Banks are also an attractive option for borrowers who value having access to a local branch that can offer personalized customer care. On the downside, rates are typically higher than with credit unions, and some lenders charge high fees on auto loans.
Excluding institutions that do not offer auto loans, the leading banks by total assets are:
Credit unions
Credit unions are responsible for 25.8% of all auto loans and 26.7% of new auto loans. Although they operate in a similar way to banks, they are nonprofit organizations owned by the depositors. This allows credit unions to sometimes offer lower fees and interest rates than banks.
While banks and captive lenders report declines in market share, credit unions continue to show strong growth. The top lender of auto loans in aggregate is CU Direct, a network of 1,100 credit unions and 14,800 dealerships. CU Direct has over 100 credit unions as shareholders that go from Arkansas Federal Credit Union to the University of Wisconsin Credit Union.
Other leading credit unions with significant market share are these:
Captive Lenders
A captive lender is a finance subsidiary of a car manufacturer. Auto companies use them to help buyers finance their vehicles. Though captive lenders once dominated used financing, their 7.89% market share in 2022 failed to impress. Nevertheless, they remain a useful resource for borrowers who need them.
A few worth noting are the following:
Buy Here Pay Here dealers
“Buy here, pay here” dealerships (also known as BHPH) are auto dealers that also finance the cars they sell. They differ from traditional dealerships in that they provide in-house financing instead of relying on third-party lenders. BHPH usually targets buyers with poor credit who don’t qualify for auto loans with more competitive rates and terms.
Finance Companies
Auto finance companies operate similarly to banks and credit unions. However, they don’t accept consumer deposits (such as checking or savings accounts) and are often more open to borrowers with subprime credit. Some leading auto finance companies based on market share are:
- Santander Consumer’s RoadLoans
- Credit Acceptance
- World Omni Financial
- GM’s AmeriCredit Financial
- Westlake Financial Services
Auto loan volumes by income
It is important to consider income when assessing auto lending trends. The income of a household will determine whether it needs credit to buy a car and if it will be able to qualify for the credit it wants. Income can also determine the rates you qualify for and the likelihood you will default on your payments.
Car owners make 3x as much as those who don’t
A study published in the Journal of Planning Education and Research analyzed the relationship between car ownership and income in 1950 and 2013. The study revealed that car owners make more than three times as much as those who don’t. This financial gap grew more than the gap between homeowners and renters, or those with and without college degrees.
Auto loan delinquency rates
Delinquency rates on loans tell us what percentage of the debt is overdue for payment. It can act as the canary in the coal mine and warn investors of an imminent downturn. It is probably the most useful of credit stress indicators.
Percentage of auto loan debt 90+ Days Delinquent by Loan Type
Auto loan delinquency rates look low compared to credit card and student loans. However, auto loans have the highest delinquency rate among secured loans. What is even more concerning is that delinquency rates are rising for auto loans as the overall delinquency rate drops. Experian data shows auto loans recorded a 90+ day delinquency rate of 4.17% in Q4 2023, compared to 3.73% in Q4 2022.
Delinquency rates are on par with those following the 2008 crash
According to Q4 2023 data from the Federal Reserve Bank of New York, delinquency rates for various types of debt increased in the fourth quarter of 2023. As of December 2023, 3.1% of outstanding debt was in some stage of delinquency. Delinquency transition rates increased for all debt types except student loans. Annualized, approximately 8.5% of credit card balances and 7.7% of auto loan balances transitioned into delinquency. Mortgage delinquency transition rates increased by 0.2 percentage points, but remained low by historic standards. Serious credit card delinquencies increased among all age groups, especially younger borrowers who surpassed pre-pandemic levels.
Though delinquency rates had been trending downward since the latter half of 2019, Q4 2023 rates are on par with those seen in the aftermath of the 2008 financial crisis. According to the Federal Reserve Bank of New York’s Q4 2023 Household Debt and Credit report, 15% of auto loan originations in Q4 2023 went to borrowers with credit scores under 620.
After origination, many subprime auto loans get packaged by banks, similar to what was done with subprime mortgages in the years leading up to the housing crash. Considering the economic conditions of 2023–2024, auto loan delinquency rates could face continued upward pressure.
Auto loan originations by credit score are falling except for 760+ range
Auto loan originations across all credit scores are experiencing a decline, although those with credit scores of 760 and above are obtaining a disproportionately large share of new auto loans despite the overall decrease in originations.
Younger borrowers are struggling the most to afford their auto loans
Borrowers under 30 are 56% more likely to default on their auto loans than those in their 30s. And borrowers in their 30s are 53% more likely to flow into serious delinquency than borrowers in their 40s. According to the World Economic Forum and the Federal Reserve’s consumer debt data, 60% of car borrowers were between the ages of 18 to 39. These numbers along with rising interest rates make it harder for younger people to afford a vehicle. While the difference in defaults between people in their 30s and 40s has been present for some time, the gap between borrowers in their 20s and 30s expanded since 2014.
A short history of the auto loan industry
Installment plans existed long before the first automobile rolled out of Henry Ford’s factory. However, it was auto loans that exploded the use of installment loans to finance large purchases.
We all know that assembly lines increased the volume and speed at which car manufacturers produced vehicles. However, those factories needed a steady demand for vehicles. As is the case today, cars are expensive. Few families could afford to buy one with all their cash. Enter the auto financing industry. Two companies that illustrate well the infancy of the auto loan industry are Ally Financial and Ford.
GM’s financial ally
The first major player in the auto loan industry was General Motors Acceptance Corporation (GMAC), the financing arm of GM, which was created in 1919. Consumers had to pay 35% down and pay the balance within a year.
By 1977, GM financed its 75 millionth vehicle and introduced related products, such as mechanical coverage. In 2000, GMAC became a bank, and in 2009 it transformed into Ally Bank.
Today, Ally Finance — its new name — offers a wide variety of banking products. However, auto finance is still a big part of its operations. It provides financing to 18,000 dealers and more than 4 million auto buyers in the U.S.
Ford’s savings plan
Ford’s initial answer to GM was a more fiscally responsible option that did not meet consumers’ demand for immediate credit. Ford created what was essentially a savings plan that required buyers to put a down payment and make weekly payments of $5 to $10 until the car was paid. The catch is there was no credit involved. Buyers could not pick up the vehicle until it was fully paid.
In 1928, Ford Motor Credit Company LLC was created as the financing arm of Ford. While other big financing arms, such as GMAC and Chrysler, now operate as separate companies, Ford Credit is still a wholly-owned subsidiary of Ford.
Banks and credit unions enter the market
In the 1950s, banks started to offer auto financing products. The implementation of vehicle identification numbers (VIN) and credit scores helped lenders manage risk more efficiently and encouraged more lenders to enter the market.
Improvements in the production quality of cars also made it possible for buyers to finance their vehicles for multiple years. Previously, lenders were concerned about offering loans with terms longer than a year because they feared borrowers would stop making payments when they had to start paying for auto repairs.
Today, the automotive finance industry isn’t dominated by one company. Dealers use credit aggregation systems that allow them to send standardized credit applications to multiple finance sources. In 2022, banks and credit unions own 54% of the market share. Auto finance companies, a new type of lender that didn’t exist until relatively recently, are already close to 13% market share. Captive lenders, on the other hand, have seen their market share drop, but they still own nearly 23% of auto loan balances.
The future of the auto finance industry
These are interesting times for the auto finance industry. We are living at the crossroads of disruptive social and technological forces that are changing the way we think of transportation. Although it is impossible to be certain about what the future holds for the auto finance industry, here are some predictions based on current trends.
Auto loan interest rates declined following Fed rate cuts in 2024
The Federal Reserve cut its benchmark interest rate three times in 2024 — in September, November, and December — each by 25 basis points. This eased borrowing costs across consumer credit markets, including auto loans. Heading into 2025, average rates on five-year and four-year loans came under downward pressure as a result.
In the short term, market share will shift to finance companies, credit unions, and captive lenders
Banks lost market share in 2022 (27.9% vs. 30.3%). Credit unions gained (25.8% vs. 18.3%) market share, as did (to a lesser extent) finance companies (12.6% vs. 11.6%). Though finance companies’ total loan balances had yet to recover from 2020 setbacks, credit union growth was especially strong. Delinquency rates remained relatively low through 2023, allowing lenders to keep lending requirements accessible. However, this trend won’t last if delinquency rates continue to rise.
Auto leasing will continue to grow
The growth trend of auto leasing shows no sign of slowing down. Leasing provides a middle-ground between auto ownership and car-sharing that is gaining popularity, particularly among prime borrowers.
Mobility as a service will continue to grow
Although our thirst for auto ownership will not die overnight, it is equally clear that ride-sharing and shared ownership are here to stay. These new models will help keep vehicles affordable as technology and production costs increase. However, the scale of their growth and ultimate success is still uncertain. A lot hangs on technology regulation and social acceptance.
Personal auto financing will eventually shrink
The car-sharing model will ultimately cause auto sales volume to drop. If big swaths of the market choose on-demand mobility instead of buying a private car, we will need fewer vehicles. The auto finance market will shrink, and commercial financing will grow. According to a 2016 study by Deloitte, commercial auto financing could absorb 35% of the entire auto financing market — a projection that has not yet materialized but continues to inform long-term industry planning.
Auto lenders will need to adapt
In 2023, dealerships originated 63% of all new auto loans. If the ride-sharing and car-sharing revolution continues, the current dealer point-of-sale financing model will shift.
Dealerships will need to adapt by making drastic changes to their business models. This could mean providing their own mobility service or gaining an edge on the remaining private and commercial auto sales.
For large banks and finance companies, the changes could be less dramatic. Some well-diversified players may just need to shift their emphasis from the auto lending sector to the equipment purchasing sector.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
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