Subprime Borrowers Reach 15% of Auto Finance Market as Delinquencies Tick Up

According to the latest automotive finance data issued by Experian, subprime borrowers account for one of the largest shares of auto financing in recent years.

In the fourth quarter of 2025, subprime borrowers accounted for 15.31% of all vehicle financing, an increase of 0.77 percentage points (from 14.54%) over the same time frame last year. The subprime category has historically referred to borrowers with FICO credit scores below about 620.

The recent rebound suggests that lenders will still accept weaker-credit applicants even with rising interest rates. Lenders use extended loan terms to offer consumers low monthly payments that enable them to purchase vehicles they may not have been able to afford otherwise.

“Recent growth in the subprime segment reflects sustained consumer demand for vehicle financing, even as market conditions continue to shift,” said Experian Head of Automotive Financial Insights Melinda Zabritski.

Although the data shows early signs of strain, delinquencies are rising, and denial rates have risen significantly over the last few months. These numbers raise a major question: Are lenders effectively adjusting to changing demand, or simply taking on additional risk by increasing lending to subprime consumers?

Auto finance lenders are financing a greater number of subprime borrowers. Lenders continue to see strong demand from the subprime segment, even as higher interest rates and rising vehicle prices cool other parts of the market.

The long-term trend may also represent a continued need for car loans by those with fewer credit options.

A second major change in auto lending is the growing use of extended loan terms.

“Despite shifts in average loan amounts and monthly payments, we’re seeing the market adapt,” Zabritski said. “Consumers and lenders are finding ways, such as extending loan terms, to make financing fall within a budget.”

Loans with terms of 73-84 months were responsible for nearly 30% of all new vehicle financing in Q4 2025, up from 26.03% the prior year.

Longer loan terms provide more affordable monthly payments and allow buyers to finance vehicles that might otherwise be out of reach. Indeed, lower payments may be the only way for borrowers who have poor credit to get a loan.

In addition to increasing the amount of interest borrowers pay over the life of the loan, longer loan terms expose lenders to potential credit risks for an extended period. Although longer loans will provide consumers with a manageable payment today, they may only postpone repayment risk.

The rise in demand for subprime financing is occurring alongside signs that credit access may be tightening.

In addition to the 2.54% (from 2.45%) increase in 30-day delinquency over the past year, 60-day delinquency has risen to 1.00% (up from 0.94%), suggesting the increasing costs of financing associated with rising interest rates and vehicle prices are further limiting the ability of consumers to borrow money.

Further, the denial rate on new car loan applications, according to data from the Federal Reserve Bank of New York, reached 15.2% in October and was 6.7% in June. This indicates that lenders are being cautious about lending at current levels due to increasing concerns regarding an increase in defaults.

Subprime borrowers are taking on a greater amount of exposure in the auto-finance market. Auto-financing companies are showing a willingness to serve subprime consumers through extended loan terms so as to allow consumers to make their monthly payments affordable.

But increases in delinquency rates and higher denial rates demonstrate that there is an inherent risk associated with such strategies.

Such risk is increased if there is an economic downturn in the future or if consumers have difficulty managing longer terms. That means the recent growth in lending to subprime automobile buyers will be tested to determine how resilient these lenders remain.