CarMax Auto Finance came to market this month with a $600 million asset-backed securitization deal backed by nonprime auto loans as the financier also increased its penetration in Tier 2 financing in its first fiscal quarter of 2027.
Tier 2 includes third-party lenders that pay CarMax Auto Finance (CAF) a fee or to whom no fee is paid. The tier is largely made up of financing to borrowers with an average FICO of 602, according to CarMax.
CarMax’s overall penetration rate was 45.7% in Q1 compared with 44.4% a year prior, according to its June 17 earnings release for the quarter ended May 31. Tier 2 penetration by third-party lenders fell to 15.7% in the quarter compared with 17.7% in Q1 2025.
“CAF was the largest Tier 2 lender during the quarter, further demonstrating the progress we are making in our full spectrum efforts,” Senior Vice President Jon Daniels said during the company’s earnings call.
CAF originated $2.4 billion in Q1, up 5.5% YoY, while its portfolio sat at $16.5 billion, according to its release.
The latest deal was CAF’s first nonprime issuance since February, according to CreditFlow, which monitors securities. CarMax issued its first nonprime deal of 2025 in March and its second in September.
CarMax separated its nonprime and prime ABS programs in June 2024.
Breaking down the latest deal
In CAF’s latest nonprime ABS deal, several credit characteristics changed marginally compared with the February issuance, according to a June 4 S&P Global presale report:
- The collateral pool’s weighted average (WA) FICO score was 613, up from 612;
- The WA annual percentage rate was 16.30%, down from 16.49%;
- The WA original term length rose to 70.13 months from 70.12 months; and
- The WA loan-to-value ratio was 97.68%, down from 98.39%.
The percentage of loans with an original term of 73 months to 78 months also rose to 22.75% from 16.16%, according to the report.
CarMax’s serviced portfolio for the collateral pool stood at $4.9 billion as of April 30, down 1% YoY. Delinquencies of 31-plus days declined 109 basis points (bps) YoY to 12.3%, while net charge-offs stood at 4.7%, up 29 bps YoY.
Total U.S. auto ABS volume rose to $89.5 billion YTD through June 19, up 2.8% YoY, according to the latest data from JPMorgan Securities. Issuance volume rose 3.8% YoY for nonprime loans to $21.7 billion.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 5-7 at Caesars Las Vegas. To learn more about the 2026 event and register for early-bird pricing through Aug. 21, visit www.AutoFinance.live/AFS.
