Speed Bump Ahead for Subprime Auto Lenders

Automobile sales may still be rolling along, but the road is getting rocky for subprime borrowers. Lenders are pickier about high-risk loans even as overall approvals quietly go up. That leaves those with dubious credit to work harder to get financing.

The Dealertrack Credit Availability Index by Cox Automotive revealed that the number of subprime borrowers approved in April 2025 decreased by 2.8 percentage points from the previous month even as overall automobile loan approvals inched up by 0.2 points.

That combination signals a market still open to strong borrowers but increasingly closed off to those with lower credit scores. It’s little wonder that low-score borrowers received the go-ahead, as one of the analysts from Ford Authority named it.

What is driving the change? More buyers are becoming delinquent, and vehicles are more costly than ever before. A record number of purchasers are signing up for monthly installments over $1,000 — once the exclusive domain of mortgages.

More are stretching loan terms out to 84 months just to lower the payment. Nearly one-fifth (19.8%) of buyers took on the extended loans in Q1 2025, according to Cox and Experian — a new record.

Subprime borrowers with credit scores lower than 620 are running into more roadblocks. Data released recently indicates that 6.6% of the nation’s subprime borrowers were behind more than 60 days on payments in January 2025 — a record high post-recession.

To lenders, that’s not simply a statistic — it’s a flashing warning light.

Autoblog puts it succinctly: uncertainty in the economy and trade war concerns make lenders more cautious. Ally Bank, for instance, processed 3.8 million auto loan applications at the beginning of this year but reduced the number of approvals.

Both Wells Fargo and Capital One have joined in, rejecting more subprime borrowers in a bid to lower exposure.

Skyrocketing vehicle prices and still-elevated interest rates are driving borrowers into increasingly risky waters. A record proportion of new loans now last 84 months, as reported by Ford Authority: “Borrowers are gravitating toward longer-term loans.”

It reduces the monthly payment but increases the risk window for both the lender and the borrower.

The disparity in terms of credit-based rates is staggering. Average Q4 2024 rates among borrowers with a 755 credit history stood at 6.35%, according to Cox and Experian figures.

Deep subprime consumers buying used cars were paying almost 19% on average on new loans in May of 2025, but even worse if their credit fell below 500.

The game is not over for subprime lending, but the rules have shifted. As the largest lenders retreat, poor credit borrowers may resort to buy-here-pay-here dealerships, smaller finance companies, or new fintech players willing to risk it, usually for a high price.

Cox data indicates car sales crested late last month, and though inventory has stabilized, good financing deals have run out. New car loans average 9.64% — a rate high enough to scare marginal buyers into a tough choice.

So long as the delinquencies remain high and the rate cuts stagnate, the lenders will remain wary. Credit won’t go missing entirely, but will continue to flow more liberally to borrowers who can show that they won’t falter.

Bottom line: Consumers with weak credit need to prepare in advance for car purchases by building up their credit, setting aside a down payment, and preparing for stricter terms. There is a way forward — it may just require a few more detours.