Writer: Eric Bank
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
- TransUnion’s February 2026 Consumer Auto Survey shows strong vehicle purchase intent, but affordability pressures remain pronounced for nonprime borrowers.
- Auto loan delinquencies are expected to rise modestly in 2026.
- Increased used-vehicle supply supports nonprime origination volume, but elevated LTVs and payment stress continue to pressure portfolio performance.
The 2026 Consumer Auto Survey by TransUnion shows a large number of consumers planning to buy a vehicle in the next year. Despite continued concerns about affordability and interest rates, consumer demand for vehicles remains very strong.
There is a growing body of industry data suggesting that while the demand for vehicles remains strong, the underlying credit risk that existed before the pandemic has not materially decreased.
This credit risk is frequently in the market segments experiencing the most incremental growth. Many borrowers remain constrained in their ability to take on additional auto debt despite an improvement among lower income consumers in confidence in their finances and a general increase in their cash reserves since 2020.
Vehicle demand reflected in the Consumer Auto Survey could help create additional supply of used vehicles available for sale.
“So long as consumers continue to prioritize replacing their existing vehicles, we believe that there is the potential to add substantial amounts of used car stock to the marketplace,” according to Jason Laky, Executive Vice President and Head of Financial Services for TransUnion.
Risk Remains Concentrated in Nonprime Credit Tiers
Although the Consumer Auto Survey addresses consumer intention to buy vehicles, it does not examine whether consumers have the capacity to pay back their vehicle loans. Additional TransUnion consumer credit data provides valuable insight into lenders evaluating 2026 risk factors for automotive lending.
TransUnion predicts a small increase in the percentage of automotive loans that are seriously delinquent during 2026, including an anticipated rise of approximately 1.5% to 1.54%.
Serious delinquency estimates mask the extent of risk in nonprime and independent credit segments. Industry benchmarks indicate delinquency rates in the 60-or-more-days range of approximately 3.36% for independent and nonprime lenders versus less than 0.5% for prime lenders.
The difference illustrates the need for further segmentation of risk so lenders can more effectively predict the potential losses because of changes in borrower behavior — regardless of how small a change occurs — due to the high base level of delinquencies in the nonprime segment.
Analysts outside the car industry have also observed the differences in the risk tiers. According to VantageScore Chief Economist Rikard Bandebo, late payments for high-income and middle-income consumers have decreased over time. Conversely, delinquencies for low-income consumers have increased.
Refinance Activity Continues Despite Credit Tightening
Industry reporting suggests that prime lenders and banks and credit unions capture most refinance activity, leaving nonprime lenders with fewer refinanced accounts and more purchase-driven loans.
Accounts driven by purchases typically have less seasoning and can have more performance variability. This makes pricing discipline and close monitoring early in the loan life cycle particularly important.
Although the increased demand for vehicles provides opportunities for nonprime lenders to originate new accounts, the increased volume may also put additional pressure on underwriting standards.
Higher volume alone cannot offset an increase in loss rates if lenders do not adjust prices, terms or advance rates to reflect the risk represented by the borrower.
Many consumers are financing more than the value of the vehicle, resulting in a negative equity position from the start of the contract.
Higher interest rates and rising vehicle prices result in bigger monthly payments and exacerbate payment shock for those borrowers who have limited financial resources.
Higher loan-to-value ratios reduce the recoverable value and increase the exposure of lenders to declines in used vehicle prices. That means proper valuation and conservative advance rates become increasingly important for lenders.
Increased Used Vehicle Supply Presents Opportunity and Risk
The survey shows that many buyers expect to trade in their existing vehicles. This should lead to an increase in the supply of used vehicles, which is beneficial for nonprime and Buy-Here-Pay-Here lenders.
But the quality of used vehicle collateral and the assumptions made regarding residual values are two major concerns.
Used vehicle prices have returned to near prepandemic levels, but used vehicle pricing volatility continues to occur, especially with respect to older model vehicles and vehicles with high mileage.
Implications for the Subprime Automotive Ecosystem
The 2026 outlook for nonprime lenders represents both opportunity and caution. The trends in delinquency and the ongoing pressures of affordability calls for nonprime lenders to operate with a high degree of discipline.
Underwriting and pricing strategies developed by lenders must account for the ongoing concentration of risk in the nonprime space, not simply the average risk profile.
The challenge facing nonprime lenders is to develop business growth objectives that realistically recognize the borrowers’ ability to meet debt service obligations, the performance of collateral, and the credit risk associated with each borrower in 2026.
