The automotive industry is not doing so hot
Auto loans are a good way to gauge the health of an economy. When the economy is healthy, interest rates are low, and borrowing remains strong. When things go awry, borrowing diminishes, and delinquencies creep up – which is precisely what’s happening.
Auto loan rates remain above 7%; though loan interest rates are the lowest they’ve been since August of 2023, this figure is almost double what it was pre-COVID. Approvals for auto loan rates are down, too, as lenders tighten lending habits for subprime buyers. Further, younger buyers and those with subprime loans are defaulting more frequently. In unison, these metrics cause concerns that the auto industry is about to hit a long lull.
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Lending extends far beyond new-car purchases
Subprime borrowers have credit scores below 620, and lenders use credit scores to gauge borrower reliability. These borrowers can still get new cars, but it depends on the dealership’s lending network. More specifically, it depends on that lending network’s tolerance for defaults, and they keep an eye on industry trends and internal data to inform lending.
Some automakers, such as Nissan, Hyundai, Mitsubishi, and Kia, offer subprime rates more frequently than others for new cars. Subprime loans are also popular among shoppers of pre-owned vehicles and third-party retailers like CarMax. It can be a credit-building opportunity, but data shows people are struggling and failing to make their car payments.
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In August 2025, more than 6% of subprime borrowers were 60-day delinquent (or worse), the highest level of delinquencies ever. In October 2025, 5% of borrowers were at least 90 days delinquent. Delinquencies among borrowers with excellent credit (781 and above) are also up 300%.
Loan and lease origination were down 0.2% year over year in Q3 2025 ($183.9 billion), and subprime loans made up 15% of all new loans and leases. Subprime lending is down from Q4 2024, when it accounted for 16.9% of all loans, but up month-over-month by 1%. Pre-pandemic, when auto loan interest rates were more attractive, subprime borrowing accounted for 18.9% of all lending.
Lenders are wringing their hands
Loans to borrowers with credit scores between 720 and 760 were up 3.5% in Q3 2025 when compared to Q3 2024. That’s good news, but this borrower type accounts for only 16% of the lending market. Every other risk category is borrowing less. People with excellent credit are not buying or leasing vehicles as often, while those with poorer credit are defaulting more often.
Lenders are also extending loans further. The share of loans longer than 72 months increased by 1% in Q3 2025, suggesting lenders are trying to sidestep low interest rates by offering longer terms to make monthly payments more affordable. Since the federal interest rate hasn’t come down, it’s harder for lenders to offer better rates to buyers.
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Final thoughts
The good news for the auto industry is that people are still borrowing and are willing to extend loans to ensure affordability. The bad news is that defaults are at an all-time high, and excellent, low-risk buyers are holding off on new car purchases. America’s auto industry tends to signal economic trends. If this data and subprime lender Tricolor’s collapse in September are any indication, things are likely to get worse before they get any better.
