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Auto lending competition heats up as car buyers spend tax refunds
Tax refund season has always been a shot in the arm for auto sales—but this year, it’s also a battleground. (4 min. read)
Anna del Villar
February 25, 2025
It’s that time of year—tax refund season aka Christmas for car dealers.
It’s like clock-work— every January through May buyers get their refunds, put that cash toward a down payment, and dealers see a spike in sales. And this year—Equifax is forecasting a rise of 12-20% in auto loan originations of the period.
“That tax refund money is burning a hole in those consumers' pockets… They wanna get in that vehicle just as quickly, you know, as they made it out to the car lot,” Equifax’s Will Holleman said on a recent webinar.
State of play: The average tax refund is down 33% from last year, with 2025 returns averaging $2,169 compared to $3,207 in 2024. So far, the IRS has issued 13.6 million refunds, down from 20.8 million at this time last year—but those numbers should rebound as more Earned Income Tax Credit and Child Tax Credit refunds get processed later this month.
However—tax refund season for the auto industry may not be quite as straightforward.
By the numbers:
Auto loan rates are back on the rise. New vehicle loans are on average 9.53% and used loans are significantly higher at 14.12%, according to Cox Automotive.
Via Cox Automotive
And that means higher monthly payments—right now, most borrowers are paying around $620 a month, and loans are stretching 67 months on average, per Equifax.
On top of that—in general, buyers are taking out loans north of $28,000 and subprime buyers are financing over $24,000.
But the biggest headwind? Uncertainty.
Cox Automotive’s Jonathan Smoke says the “daily news from Washington” seems to negatively impact consumer sentiment. His take? “It’s better to buy sooner rather than later, all else being equal.”
Between the lines: Whether spending a tax refund on a new or used vehicle is a sound financial decision or not, is up to the individual consumer. But lenders are feeling the pressure too… from their competition.
“One of the metrics that we use is we look at the number of inquiries, divided by the number of loans. And we actually see that also increase 20% during this time of year. So that indicates a bit more of a competitive environment. So you have loans increasing by 20%, and you also see that volume increasing by 20% as well,” said Chris Ortinau, analytics leader with Equifax.
“And during this tax season, we see that that timing is actually shrinking by about 6%. So it goes to show that you have more competition as well as. More people are trying to really make sure those loans are captured appropriately in a much more timely manner,” he explained.
Nick Huff, Director of Fred Martin Auto Group (both independent dealerships and new car franchises) says he’s seeing lending access open up to his subprime consumer base as a result.
“You know, for example, we saw Chase and Capital One came out and said, ‘Hey, we pulled back. We're trying to get a little bit more excited about the market. We're going to start buying a little deeper, make it a little more available,’” said Huff.
“We have Ally Bank who just said in, said on February fourth or third that they're opening up to access in their lower credit tiers that they haven't had access to in over a year. They're going after market share again,” he added. “So, it's a good time right now, from a credibility standpoint. It's easier to get somebody approved for a loan today than it was six months ago, certainly a year ago as well.”
Bottom line: Lenders are now racing to capture buyers while they have cash in hand, but with rising auto loan rates and broader uncertainty, affordability remains a question mark. At the end of the day—the dealers who work closely with lenders to structure smarter financing—whether it’s shorter terms, lower payments, or more flexible approvals—will be the ones who keep deals moving.
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