How Banks Regained Ground in Car Lending—and What It Portends for Subprime Consumers

Banks increased their market share in automotive financing in Q1 2025 to 26.55% compared with 24.79% a year before, the best recovery by traditional banks since the pandemic, according to the State of the Automotive Finance Market report by Experian.

With banks now finally taking the driver’s seat in the automaker finance market, subprime lenders will need to refine their pricing, underwriting, and servicing techniques to compete.

The comeback was most acute in new vehicle financing, where banks increased their share to 24.13% from 20.37% in Q1 2024. Captive auto lenders continued to hold the majority of market share for new vehicle financing despite a share decline in Q1 to 57.08% from 62.07% a year ago.

In the used car segment, banks are now in the lead with a 28.37% market share, barely ahead of credit unions.

“For the first time in years, we are finding that banks are gaining market share and recapturing their footing in a growing and expanding market,” said Melinda Zabritski, head of automotive financing insights at Experian.

The development is a reversal of the 2021–2023 high-interest rate period, when captive auto lenders enticed shoppers with subsidized financing and high incentives on recent inventory.

Q1 2025 saw a modest increase in subprime and deep subprime automotive loans, particularly in the used car category. Used car financing increased at the high and low ends of the credit spectrum, including super prime and subprime levels.

The market is still seeing a decline in overall subprime lending since the beginning of the decade, with combined subprime lending down 26.6% since 2020, according to Experian data.

New vehicle financing continues to be disproportionately weighted toward prime+ borrowers. A hefty 83% or more of Q1’s new loan originations and 86% or more of Q1’s new leases went to prime, super prime, and near prime borrowers.

Deep-subprime loans totaled a mere 0.46% of new loans and 0.30% of new leases.

Even in the used car market, where subprime borrowers historically had an easier time finding loans, the segment is contracting. While subprime used car lending edged upward in Q1, near prime borrowers experienced the greatest increase in loan sizes.

And lenders were extending longer terms in all segments of risk — virtually 70% of used car loans now carry a term of 72 months or longer.

Despite concern over increasing automobile prices and longer loan terms, customers are keeping their payments current, at least in the short term. Experian reported a decrease in 30-day delinquency in the previous year. The 60-day delinquency rate remained unchanged.

That is a good omen for lenders dealing in riskier segments. In the past, early-stage delinquency rates increase first in the subprime portfolios when financial stress is mounting. A flat-to-better trending implies borrowers are keeping on top of payments, assisted partly by seasonal tax refunds and refinancing.

In contrast, total automobile loan amounts increased 1.43% over the past year, with expansion in super prime and near prime credit segments. That is a pattern that suggests improved origination volume in borrowers whose credit profiles are healthier, a possible headwind for lenders concentrated in deeper credit segments.

Loan levels and payments kept climbing in the case of new cars. Average loans on new vehicles hit a Q1 high, an increase of $1,110 compared to the year before. Payments increased to $745 a month. Rates dipped slightly, but longer loan terms and increasing prices still sent payments climbing.

On the used car side, the average loan size increased modestly to $26,144. Rates decreased more sharply, to 11.87%, reducing monthly payments to $521 — $3 less than in the previous year.

To budget-conscious subprime buyers, this reduction represents a welcome relief from the steep cost crunch seen in the first half of the decade.

Experian reported a decrease in 30-day delinquency in the previous year, but loan levels and payments kept climbing in regard to new cars.

Meanwhile, almost 14.5% of all new lease and loan payments are now in excess of $1,000. As high-end payments become more widespread, the risks of unaffordability increase, especially for already strained subprime borrowers.

Electric vehicles accounted for almost 10% of total vehicle sales during Q1, and leasing dominated as almost 60% of all EV purchases were leases. This presents both challenges and opportunities for subprime lenders in a distinct way.

EV leases are generally allocated to higher-credit buyers, partly owing to concern about residual value and transaction prices that are typically higher.

Nevertheless, as more automakers venture into entry-level electric vehicles, leasing may soon provide subprime borrowers the means to acquire new models at lower monthly payments. The average difference in payments between a new car loan and lease stood at $142 in Q1, potentially providing relief to qualified lessees’ budgets.

Subprime lenders in particular are presented with a cautiously optimistic picture in Q1. Subprime lending is beginning to perk up in the used car market, and interest rates are easing. And while still depressed, delinquencies are reportedly steadying. Yet, competition is on the rise.

Banks are back, and credit unions are still holding their own. Captive auto lenders still reign in new car finance. Subprime lenders will be required to refine their pricing, underwriting, and servicing techniques to compete as terms get longer and Prime+ borrowers capture a greater share of the market.

And although today’s data is relatively sound, the environment is still risky. A single movement — either in interest rates, values in the used car market, or job trends — has the potential to reshape access once again for millions of consumers on the periphery of the credit spectrum.

The bottom line is that banks are regaining market share, but for the subprime lenders, the fight is just beginning.