U.S. Auto Loan Credit Availability Edges Up in September 2025 Amid Risk Concerns

U.S. auto loan credit availability increased slightly in September 2025, as indicated by the rise of the Dealertrack Credit Availability Index (CAI) to 98.1, continuing a trend of easing lending after a brief tightening in August. Approval rates for auto loans held steady at 74.4%, with lenders expanding credit offerings particularly to subprime borrowers, whose share in the loan market rose notably compared to both the previous month and the same period last year. This suggests a loosening of underwriting standards in response to market demand.

Loan pricing dynamics reflect higher risk assessments by lenders, with the average contract rate increasing to 10.90% and the yield spread widening, despite a decline in Treasury yields. This disconnect points to lenders charging more to compensate for credit risk even as their cost of funds decreases. Additionally, longer loan terms are becoming more prevalent, with over a quarter of loans exceeding 72 months, which introduces extended risk exposure for both lenders and investors.

Negative equity among borrowers has grown to 54%, while average down payments declined slightly to 13.5%. These trends indicate a riskier credit landscape where more borrowers owe more on their vehicles than the assets' current value, amplifying potential losses in default scenarios. The increased share of longer-term loans and negative equity requires lenders to carefully balance market share growth with risk management.

The gains in credit availability were broad-based across various dealer types, with the most significant improvements seen at independent used-vehicle dealerships, and notable stability in franchised used and non-captive new vehicle segments. On the lending side, banks led the expansion in credit availability, followed by auto finance companies and credit unions. Captive finance arms showed a modest decline, signaling more cautious lending within manufacturer-affiliated finance sectors.

Year-over-year data highlights sustained credit availability growth, especially in non-captive new and franchised used vehicle channels, alongside leading roles played by banks and finance companies. Consumers benefit from more financing options, especially in used vehicle markets, though affordability challenges persist due to higher borrowing costs and increasing negative equity. Market participants will need to monitor subprime loan performance and adjust strategies in line with evolving economic conditions and regulatory expectations.

Overall, the September 2025 CAI reflects a return to easing auto credit conditions, influenced by recent interest rate cuts and consistent market demand. Lenders are navigating a complex environment characterized by looser credit standards, longer loan durations, heightened negative equity, and the need to mitigate risk while serving diverse borrower profiles.