The automotive finance landscape continues to evolve as consumers, lenders, and industry stakeholders respond to changing economic conditions and persistent affordability challenges. In recent years, rising vehicle prices, fluctuating interest rates, and shifting consumer spending patterns have reshaped the dynamics of vehicle purchasing and financing. Amid these developments, subprime borrowers—consumers with lower credit scores—are once again becoming an increasingly important segment of the vehicle financing market.
According to the State of the Automotive Finance Market Report for the fourth quarter of 2025, published by Experian, subprime consumers are gradually regaining a larger share of the automotive financing landscape. The report highlights how both consumers and lenders are adapting to current market conditions, finding new ways to sustain vehicle purchasing activity despite economic pressures.
Growing Presence of Subprime Borrowers
One of the most notable findings from the report is the growth in subprime borrowers participating in the vehicle financing market. In the fourth quarter of 2025, subprime consumers accounted for 15.31% of total vehicle financing, compared with 14.54% during the same period in 2024. This increase represents the largest share of the fourth-quarter automotive finance market for subprime borrowers since 2021.
The rise in subprime participation suggests that lenders are once again becoming more comfortable extending credit to consumers with lower credit scores. It also reflects sustained consumer demand for vehicle ownership across a wide range of credit profiles.
According to Melinda Zabritski, the growth of the subprime segment indicates that consumers are still actively seeking vehicle financing even as the broader market continues to experience shifts.
She noted that affordability concerns remain a major factor influencing both consumers and lenders. As a result, financing strategies are evolving, with stakeholders adjusting lending practices and repayment structures to align with changing financial realities. These adjustments highlight broader trends in consumer credit behavior and vehicle financing patterns.
Trends in New Vehicle Financing
The report reveals that subprime borrowers are gaining traction in the new vehicle financing market as well. During the fourth quarter of 2025, the share of subprime consumers financing new vehicles rose to 6.61%, compared with 5.74% in the fourth quarter of 2024.
While this increase demonstrates expanding access to new vehicle financing among subprime borrowers, it was accompanied by a slight decline in the share of prime borrowers in the same segment. Prime borrowers accounted for 35.33% of new vehicle financing in Q4 2025, down from 36.49% in Q4 2024.
Although prime borrowers still dominate the new vehicle market, the gradual increase in subprime financing suggests lenders are broadening their credit reach to maintain vehicle sales volumes in a competitive and cost-sensitive environment.
Higher vehicle prices and elevated borrowing costs have made it more difficult for some consumers with stronger credit profiles to justify new vehicle purchases, which may partially explain the slight shift in market share.
Subprime Growth in Used Vehicle Financing
The used vehicle financing segment continues to play a critical role in the automotive market, particularly for consumers seeking more affordable transportation options. The report indicates that subprime borrowers remain a significant presence in this category.
In the fourth quarter of 2025, 22.47% of used vehicle loans were issued to subprime borrowers. This represents a modest increase from 22.11% recorded during the same quarter in 2024.
Meanwhile, prime borrowers in the used vehicle segment experienced a slight decrease, falling from 36.75% in Q4 2024 to 35.88% in Q4 2025.
Used vehicles often serve as a more accessible entry point for subprime consumers due to lower purchase prices and financing requirements. As affordability remains a key concern for many households, the used vehicle market is expected to remain an important avenue for both lenders and consumers.
Rising Vehicle Loan Amounts
Vehicle financing data from the report also highlights continued growth in loan amounts for both new and used vehicles.
For new vehicles, the average loan amount reached $43,582 in Q4 2025, representing a year-over-year increase of $1,882. Rising loan amounts are largely driven by increasing vehicle prices, higher production costs, and continued consumer demand for vehicles equipped with advanced technologies and safety features.
Alongside the rise in loan amounts, the average monthly payment for new vehicles climbed to $767, up $21 compared with the previous year. Meanwhile, the average interest rate for new vehicle loans was 6.37%, slightly higher than the 6.34% recorded in Q4 2024.
Although interest rates have remained relatively stable, the combination of higher vehicle prices and increased loan balances has contributed to higher monthly payments for many consumers.
Used Vehicle Financing Costs
The report also identified notable trends in the used vehicle financing market. In Q4 2025, the average loan amount for used vehicles increased to $27,528, representing a year-over-year increase of $872.
Monthly payments for used vehicle loans rose slightly as well, increasing from $528 in Q4 2024 to $537 in Q4 2025.
However, one encouraging development for borrowers was the decline in the average interest rate for used vehicle loans, which dropped from 11.63% to 11.26% year-over-year. Although used vehicle financing typically carries higher interest rates than new vehicle loans, this modest decline may help offset some of the cost pressures associated with rising loan amounts.
Increasing Use of Longer Loan Terms
Another important trend highlighted in the report is the growing use of longer loan terms to make vehicle financing more affordable.
As loan amounts continue to rise, consumers and lenders are increasingly relying on extended repayment periods to keep monthly payments manageable. This trend is visible across both new and used vehicle financing.
For new vehicles, the share of loans with 73- to 84-month terms increased to nearly 30% in Q4 2025, up from 26.03% in Q4 2024. Additionally, loans with terms longer than 85 months rose to 2.22%, compared with 1.84% the previous year.
A similar pattern is evident in the used vehicle market. Loans with 73- to 84-month terms increased from 26.11% in Q4 2024 to 28.68% in Q4 2025.
Meanwhile, loans exceeding 85 months for used vehicles grew slightly from 0.95% to 1.03%.
Extending loan terms allows consumers to reduce monthly payments, making higher vehicle prices more manageable. However, longer loans can also increase the total cost of borrowing over time.
Market Adaptation and Consumer Strategies
According to Zabritski, these evolving financing patterns demonstrate how the automotive market is adapting to economic conditions.
Consumers continue to seek ways to balance their transportation needs with financial constraints, while lenders are adjusting loan structures to accommodate those needs. Extended loan terms, refinancing options, and flexible financing arrangements are becoming more common as the industry navigates affordability challenges.
Monitoring these trends over the next 12 to 18 months will be essential to understanding how consumer credit behavior and vehicle financing patterns continue to evolve.
Market Share Among Automotive Lenders
The report also provides insight into the competitive landscape among automotive lenders.
In the fourth quarter of 2025, banks maintained the largest share of the automotive finance market, accounting for 29.29% of total financing activity.
They were followed by captive finance companies, which held 27.55% of the market. Captive lenders are financial institutions owned by vehicle manufacturers and typically focus on financing vehicles produced by their parent companies.
Credit unions ranked third with 19.56% market share, continuing to play an important role in providing competitive financing options to consumers.
These three groups collectively dominate the automotive lending market, though other financial institutions and specialized lenders also contribute to the overall financing ecosystem.
Delinquency Rates Show Slight Increase
While vehicle financing activity remains strong, the report notes a modest increase in delinquency rates.
The 30-day delinquency rate rose to 2.54% in Q4 2025, compared with 2.45% during the same quarter in 2024.
Similarly, the 60-day delinquency rate increased from 0.94% to 1.00% year-over-year.
Although these increases are relatively small, they may signal financial pressure among some borrowers. Monitoring delinquency trends will be important for lenders seeking to manage risk while continuing to extend credit across different consumer segments.
Growth in Vehicle Refinancing
Another positive development highlighted in the report is the increasing benefit of vehicle refinancing for consumers.
In Q4 2025, borrowers who refinanced their vehicle loans achieved average monthly savings of $84, compared with $73 in savings during the previous year.
Refinancing allows consumers to replace an existing loan with a new one that offers better terms, such as lower interest rates or longer repayment periods. As interest rates fluctuate, refinancing can provide meaningful cost savings for borrowers seeking to reduce their monthly financial obligations.
New vs. Used Vehicle Financing Trends
The report also reveals subtle shifts in the balance between new and used vehicle financing.
The share of new vehicle financing increased slightly, rising from 41.20% in Q4 2024 to 42.20% in Q4 2025.
At the same time, used vehicle financing declined marginally, dropping from 58.80% to 57.80%.
Although used vehicles still represent the majority of financed transactions, the modest increase in new vehicle financing suggests improving availability of new vehicles and steady consumer demand.
Stability in Vehicle Leasing
Vehicle leasing activity remained relatively stable during the reporting period. Leasing accounted for 24.37% of new vehicle transactions in Q4 2025, compared with 24.87% in Q4 2024.
Leasing remains an attractive option for many consumers because it typically offers lower monthly payments compared with traditional vehicle loans. It also allows drivers to upgrade to newer models more frequently, which can be appealing as automotive technology continues to advance.
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