Longer Auto Loan Terms Gain Momentum as Consumers Prioritize Affordability, Experian Report Finds
As vehicle affordability remains a pressing concern across the automotive landscape, consumers are increasingly turning to extended financing terms to keep monthly payments manageable. New findings from Experian’s latest automotive finance report reveal a noticeable rise in long-term vehicle loans, reflecting broader shifts in consumer purchasing behavior amid higher vehicle prices and evolving lending conditions.
According to Experian’s State of the Automotive Finance Market Report for the first quarter of 2026, a growing share of consumers financing both new and used vehicles opted for loan terms extending beyond six years. The trend highlights how affordability challenges continue to influence purchasing decisions, even as interest rates begin to ease and refinancing opportunities improve.
The report points to rising vehicle costs, larger loan amounts, and sustained consumer demand for larger vehicles as key drivers behind the shift toward extended financing. At the same time, improving credit accessibility—particularly within the subprime market—is helping more borrowers secure financing, though delinquency rates are also showing modest increases.
Longer Loan Terms Become More Common
One of the clearest trends identified in Experian’s Q1 2026 findings is the increasing use of longer-term loans among vehicle buyers. Consumers financing new vehicles are particularly leaning on extended repayment periods to help offset rising monthly expenses.
During the first quarter of 2026, loans for new vehicles exceeding six years accounted for 35.55% of all financed new vehicles. This marked a considerable increase from 30.83% recorded during the same period in 2025. Additionally, financing terms longer than 85 months also increased, rising from 2.95% a year earlier to 3.33%.
The used vehicle market mirrored this trend. More than 31% of financed used vehicles carried loan terms beyond six years in Q1 2026, compared to 28.60% in the first quarter of the previous year. Similarly, ultra-long loan terms exceeding 85 months grew slightly among used vehicles, climbing from 1.32% to 1.40%.
The steady rise in longer loan durations suggests that consumers are increasingly balancing affordability concerns with the desire to purchase vehicles that may otherwise stretch household budgets. Rather than downsizing vehicle preferences, many buyers appear willing to extend repayment schedules to make monthly obligations more manageable.
Industry analysts note that while longer loans may reduce monthly payments, they can also result in borrowers paying more interest over the life of the loan and remaining in negative equity positions for longer periods. Nevertheless, for many consumers navigating high vehicle prices, longer financing remains an attractive option.
Affordability Continues to Shape Consumer Decisions
Experian’s report reinforces the notion that affordability has become one of the most influential factors in automotive purchasing decisions.
Melinda Zabritski, head of automotive financial insights at Experian, emphasized that consumers continue adapting their financing strategies to account for elevated vehicle costs.
According to Zabritski, shoppers are still gravitating toward larger and often more expensive vehicles, despite financial pressures. Instead of shifting dramatically toward smaller or lower-cost models, consumers are increasingly using financing structures—particularly extended loan terms—to offset rising monthly payment burdens.
The numbers support this trend.
In Q1 2026, the average loan amount for a new vehicle climbed by $2,150 year-over-year, reaching $43,925. Alongside the increase in financing size, the average monthly payment for new vehicles also rose, increasing from $748 during Q1 2025 to $770 this year.
On the used vehicle side, financing costs also moved upward, though at a slower pace. The average used vehicle loan amount increased by $785 year-over-year to $27,070, while average monthly payments edged up from $523 to $531.
Although monthly payments continue rising overall, Experian’s data revealed an interesting affordability dynamic within the new vehicle segment. Nearly one in five newly financed vehicles still carried monthly payments below $500 during the quarter. This suggests that despite broad increases in financing costs, a significant segment of consumers continues to find ways to maintain lower monthly obligations through vehicle selection, down payments, incentives, or extended financing terms.
Refinancing Gains Importance Amid Falling Rates
Another major takeaway from Experian’s report is the growing role of automotive refinancing as consumers seek financial relief.
As interest rates gradually decline, refinancing is becoming a more attractive option for borrowers looking to reduce monthly payment pressures or improve loan terms. Lenders, meanwhile, are increasingly using refinancing as a strategy to remain competitive and attract customers.
Experian found that consumers who refinanced vehicle loans during the first quarter of 2026 experienced meaningful financial improvements.
On average, refinancing reduced borrowers’ interest rates by approximately 2.2%. The average refinanced interest rate dropped from 10.29% to 8.05%, generating measurable monthly savings for borrowers.
Consumers who refinanced during the quarter reduced their monthly vehicle payments by an average of $81.
The data also highlighted the important role credit unions continue to play in automotive refinancing.
Credit unions captured the largest share of vehicle refinancing activity during Q1 2026, accounting for 63.43% of refinanced loans, an increase from 62.31% during the same period last year. Banks represented a smaller portion of refinancing activity, slipping slightly from 23.51% in Q1 2025 to 22.59% this quarter.
Savings achieved through refinancing also varied depending on lender type. Consumers refinancing through credit unions reduced monthly payments by an average of $101, while those refinancing through banks saved approximately $60.
This difference underscores the competitive rates and borrower-friendly structures often associated with credit unions, which continue to position themselves as key players in the automotive lending ecosystem.
Subprime Financing Expands
The report also showed continued growth in financing accessibility, particularly among subprime borrowers.
During the first quarter of 2026, subprime consumers represented 15.75% of total automotive financing activity, up from 14.40% during the same quarter in 2025.
Growth was visible across both new and used vehicle financing segments.
For new vehicles, the subprime financing share increased to 6.88%, compared to 5.61% one year earlier. In the used vehicle segment, subprime participation expanded even further, growing from 19.36% in Q1 2025 to 20.60% this quarter.
The expansion of financing access among lower-credit consumers suggests lenders are becoming more willing to extend financing opportunities, potentially reflecting improving economic conditions, stronger underwriting confidence, or competitive pressures within the lending market.
Experian noted that while refinancing conditions have improved for many borrowers, broader financing accessibility is also gaining momentum.
The continued expansion of subprime financing may provide more consumers with vehicle ownership opportunities, particularly as transportation remains essential for commuting and daily life. However, experts also caution that extending credit to riskier borrowers may require careful monitoring of repayment trends.
Delinquencies Show Slight Increases
While financing accessibility continues improving, Experian’s report also showed modest increases in loan delinquencies.
Thirty-day delinquency rates rose to 2.00% during the first quarter of 2026, up slightly from 1.95% in Q1 2025. Similarly, 60-day delinquency rates increased from 0.83% to 0.86% year-over-year.
Although the increases remain relatively small, they may indicate ongoing financial pressure among some borrowers as inflation, household costs, and higher vehicle prices continue affecting budgets.
Even so, delinquency rates remain within manageable ranges, suggesting most consumers continue meeting payment obligations despite affordability challenges.
Banks Maintain Largest Share of Automotive Financing
In terms of lender market share, banks continued to lead the automotive finance sector during Q1 2026.
Banks accounted for 28.42% of total market share, maintaining their position as the largest financing source for consumers. Captive finance companies—financial institutions affiliated with automakers—followed closely with 26.83% market share.
Credit unions represented 20.09% of the overall automotive finance market, reinforcing their growing influence in vehicle lending, particularly within refinancing activity.
The competitive balance among banks, captive lenders, and credit unions reflects an increasingly diversified lending environment, giving consumers a wider range of financing options.
EV Financing Pulls Back While Hybrids Gain Ground
The report also highlighted changing consumer preferences in electrified vehicle financing.
New electric vehicle financing declined significantly during Q1 2026, accounting for 6.23% of financed vehicles compared to 10.93% during the same quarter last year.
In contrast, hybrid vehicles gained momentum. Hybrid financing increased from 12.08% in Q1 2025 to 14.90% in Q1 2026.
The shift suggests some consumers may be gravitating toward hybrid models as a middle-ground solution that offers fuel efficiency without concerns related to charging infrastructure, range limitations, or higher upfront costs often associated with fully electric vehicles.
As automakers continue expanding electrified portfolios, financing trends may provide important clues about evolving consumer preferences and affordability considerations.
Experian’s Q1 2026 automotive finance findings paint a picture of a market increasingly shaped by affordability concerns, financing flexibility, and shifting borrower behavior.
Longer loan terms are becoming more common as consumers attempt to balance rising vehicle prices with manageable monthly payments. Refinancing opportunities are improving thanks to easing interest rates, while broader financing accessibility is helping more consumers—including subprime borrowers—enter the market.
At the same time, slight increases in delinquency rates and declining EV financing suggest consumers remain highly sensitive to costs and financial uncertainty.
Moving forward, industry stakeholders—including automakers, lenders, and dealerships—will likely continue adapting financing programs to support affordability while balancing risk. As vehicle prices and economic conditions evolve, financing structures may play an even larger role in shaping how consumers purchase and own vehicles in the years ahead.
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