Changing auto lending trends
“At the end of 2025, the combined new and used auto loan portfolio at credit unions stood at just over $480 billion, down almost 6 billion from a year ago and the lowest balance since the third quarter of 2022,” says Senior Economist Dawit Kebede in the latest Economic Update.
He points to a variety of factors for this decline in auto lending: return of captive financing, credit unions pulling back from indirect lending, and rising delinquency rates.
“Underlying all of this is a fundamental affordability problem that is suppressing demand across the entire auto market, not just at credit unions,” says Kebede.
Impact of tariffs on auto pricing and costs
Tariffs have impacted car prices. Steel, copper, aluminum, and other imported parts have increased the cost of domestic production, and foreign-produced cars face a tariff on the final product. Kebede says this, on top of normal price increases, has pushed the new car finance amount to an average of nearly $44,000.
He says these higher prices for new cars are increasing demand for used cars, and increasing prices there. Consumers are opting for longer-term loans to afford these rapidly rising prices.
Affordability and longer loan terms
“Loans of 84 months or more now represent a growing share of originations,” adds Kebede. “And roughly 30 percent of people who traded in a vehicle in Q1 2026 were underwater on their previous loan, carrying an average negative equity of $7,200.”
This creates a compounding effect of negative equity, increasing the likelihood of a late, missed, or defaulting payment on the loan. This creates credit risk concerns for credit unions trying to put people in a new car.
However, Kebede cites historical data on credit union auto loan rates relative to competitors. The data clearly shows that credit unions offer the best rates on the market, providing some reprieve from these rising costs.
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