Auto credit availability improves in Sept., but risks remain

Auto credit got a bit easier to access in Sept., but there’s more going on beneath the surface.

What’s happening: According to the Dealertrack Credit Availability Index, credit access nudged up 0.4% last month, snapping a five-month streak of tightening.

• The improvement in accessibility was driven by lower auto loan rates, more subprime approvals, and an increase in long-term loan options (72+ months). These shifts made it easier for some buyers to get financing.

• But independent used car dealers didn’t see the same benefits. Credit actually tightened in that space, even though it was still better than it was before the pandemic.

Why it matters: While it’s good to see credit loosening, there are potential risks piling up.

• Subprime loans, which come with higher default risks, rose by 30 basis points (BPs) in Sept., and they’re now 1.2 percentage points higher than last year. Yet — the 60-day delinquency rate for subprime auto loans in July was the highest on record, except for 2009, according to UBS.

• We’re also seeing more buyers opt for long-term loans, with the share of 72+ month loans jumping by 80 BPs. It's a sign that people are taking on bigger commitments—often leading to higher negative equity down the road.

• In fact, negative equity loans have risen for four months in a row, up 1.7 percentage points year over year.

The bigger picture: Lenders are feeling some pressure, too. While the average auto loan rate dropped by 15 BPs in Sept., the 5-year U.S. Treasury rate fell even further, widening the yield spread by 6 BPs. Banks and credit unions were the most willing to ease up on lending standards, but credit remains tighter overall compared to last year.

Worth noting: Expert eyes are watching the churn of auto loans that are 60+ days past due (DPD). Since 2019, more loans have been stuck in delinquency instead of moving into repossession.

What’s next: While credit access is improving slightly, the growing reliance on subprime and long-term loans is a red flag for both lenders and buyers. If delinquencies continue to rise and negative equity worsens, the road ahead for auto credit may remain bumpy.

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