Loan balances remained flat for a year despite higher unit sales, an unusual situation. Two reasons: prices and cash deals.
By Wolf Richter for WOLF STREET.
Despite higher unit sales of new and used vehicles in 2025, total balances of auto loans and leases in Q3 remained at $1.66 trillion, essentially unchanged for an entire year, according to data from the New York Fed, based on Equifax credit report data.
There are two big factors for this unusual situation of flat auto loan balances for a year despite higher unit sales volume:
More cash deals: A larger portion of used-vehicle buyers paid cash rather than finance amid higher interest rates for used vehicles. The portion of cash deals rose to 63% in 2025, from 61% in 2024, 59% in 2023, and 58% in 2022, according to Experian. The portion of new-vehicle cash deals has remained roughly unchanged at about 20%, amid subsidized leases and interest rates that have captured a big portion of the automakers’ incentives.
Lower prices: Prices for new and used vehicles combined have barely risen year-over-year and are down from their peaks in 2022 – new vehicles by a hair, and used vehicles by 19%, which has been giving some serious heartburn to big used vehicle dealers, such as CarMax.
The burden of auto loans and leases: Debt-to-income ratio.
The burden of these auto loans and leases on households can be tracked with the auto-loan-to-disposable-income ratio. This accounts for more people and households, higher employment, and higher incomes.
Disposable income, released by the Bureau of Economic Analysis, represents an after-payroll-tax cashflow from all income sources but excludes capital gains: Household income from after-tax wages & salaries, plus income from interest, dividends, rentals, farm income, small business income, transfer payments from the government, etc. It roughly represents cash flow after payroll taxes that is available to spend on the costs of living and debt service.
Due to the government shutdown, the BEA has not yet released disposable income for September. To get Q3 disposable income, we can use the data for July and August and estimate September based on average growth year-to-date.
The auto-loan-to-disposable income ratio in Q3 declined to 7.2%, on flat loan balances and higher disposable income.
The stimulus distortions in Q2 2020 and in Q1 2021 caused disposable income to jump, thereby pushing down the ratio. Now the burden is in the middle of the 22-year range:
Serious delinquency rates: total, prime, and subprime.
Of the auto loans and leases originated in Q3, 15% were subprime rated (below 620 FICO score) at the time of origination, according to the NY Fed’s Equifax data.
Of the outstanding balance of auto loans and leases (the $1.66 trillion), also 15% were subprime rated at origination, according to Experian data.
Subprime gets a lot of press in the crisis media, but is only a small part of auto lending (15%), and an even smaller part of auto sales, as 20% of new vehicles and over 60% of used vehicles are sold without any financing at all.
For all auto loans and leases, including subprime, the 60-plus-day delinquency rate was 1.57% at the end of September, roughly unchanged from a year ago, according to Equifax. Delinquency rates are very seasonal. Unfortunately the publicly available monthly data from Equifax only goes back to the pandemic, and values from the prepandemic normal years are not available (red in the chart below).
For prime-rated auto loans, the 60-plus day delinquency rate ticked up to 0.37% at the end of September, according to Fitch, which rates asset-backed securities (ABS) backed by auto loans. The recent high was 0.39% in January and February. Even during the Great Recession, the prime delinquency rate maxed out at only 0.9% (blue in the chart).
Prime-rated auto loans have a credit score of 660 or higher at origination. Some specific loan pools of ABS rated by Fitch have no loans rated below 700. The top end of the credit-score scale is 850.
Subprime means “bad credit,” not low income. “Bad credit” is a result of being late in paying obligations, or not paying them at all. It does not mean “low income,” though the crisis media constantly equate subprime with low-income.
Low-income people have trouble getting loans, and if they can get loans, balances are relatively small. But the young high-income high-debt dentist into it over his head is a classic example of high-income subprime (he’ll get it cleaned up, but until then, if he gets a new loan, it’s a subprime loan).
An entire industry has sprung up selling at very high prices and lending at very high interest rates to subprime-rated customers, a high-profit-high-risk business. These companies range from specialized auto-dealer-lenders (which tend to implode periodically) to Wall Street firms that securitize these subprime-rated auto loans into ABS and sell them to institutional investors around the globe that used to like them during the era of ZIRP due to their higher yields.
The subprime 60-day-plus delinquency rate rose to 6.50% in September, the highest rate for any September, up from 6.12% a year ago, according to Fitch. The seasonal peak was in January at 6.56%, the still reigning all-time high (gold in the chart).
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