July 30, 2025
As we tip into the second half of the year, auto loan rates remain high, with average interest rates for new vehicles hovering just above 7% for prime borrowers—a painful jump from pre-pandemic lows. But while rates aren’t falling quickly, forecasters expect gradual improvement later this year as the Fed signals potential cuts. So, what does this mean for credit unions?
Saying Yes When Others Say No
Despite high rates, more borrowers are hearing “yes.” Consumers are widely reporting improved access to auto loans, with rejections dipping to 7% in June 2025, down from February’s 14%.
That optimism doesn’t extend evenly across all borrowers. For low- and no-credit individuals, access remains elusive, but instead of turning those borrowers away, many credit unions are leaning in with creative solutions designed for members who don’t fit traditional scoring models.
“Second-chance” auto loans are gaining traction. These loans are built for borrowers with sub-640 credit scores or no score at all. Instead of auto-rejecting based on an algorithm, credit unions take a case-by-case approach, evaluating income stability, rental history, or job changes. These programs can significantly streamline thin-file borrowers’ path to vehicle ownership.
Of course, there are still guardrails: Credit unions cap loan amounts and require insurance, but it’s still a win-win for members. Often, these second-chance solutions include built-in coaching, with members potentially earning rate reductions over time for consistent payments.
It’s a different kind of “yes”—one that protects the portfolio while helping consumers rebuild credit, avoid predatory alternatives, and become loyal, long-term members.
Delinquencies Down, Risk Remains
After an extended period of concern, auto loan delinquencies are also leveling out. The first quarter saw 30-day delinquencies drop YOY, but 60-day delinquencies remain. For that reason, then, it’s clear the risk hasn’t completely disappeared.
One red flag is loan-to-value (LTV) ratios, especially on used vehicles. The average LTV on used car loans has climbed to 127%, the highest in five years, meaning many borrowers are financing more than the vehicle is worth.
That kind of negative equity increases the risk of voluntary surrenders, or “drop-offs.” This makes careful portfolio management and LTV discipline even more critical in the year ahead.
Credit Unions Holding Marketing Share
Despite retained high rates and ongoing delinquency concerns, credit unions are maintaining—even modestly growing—their share of the auto lending market.
In Q1, credit union auto loan market share ticked up, from 20.20% to 20.63% year-over-year.
That growth is especially strong in used vehicles. Nearly a third of credit union auto loans were for vehicles four to eight years old, and almost a quarter were for vehicles over nine years old—far ahead of banks.
It’s clear that as consumers hunt for affordability and hold onto cars longer, credit unions are effectively positioned to serve them.
The Bottom Line
Auto lending in 2025 isn’t a rebound story; it’s a tale of reinvention.
Rates are still high, LTV ratios are creeping up, and concerned consumers are thinking twice before taking on new debt. But amid all this, credit unions are finding ways to grow market share. Not through business as usual, but through innovation.
Credit unions are leaning into used car financing, meeting demand for older, more affordable vehicles. They’re serving thin-file members more effectively, and—perhaps in no small part due to both shifts—they’re keeping delinquencies in check.