Credit availability index up 5.6% YoY

Overall auto credit availability improved in February, driven by increased subprime borrowing and more longer-term loans, despite a decline in loan approval rates. Auto lenders must balance making loans more affordable for struggling customers with ensuring those loans stay profitable, Arivo Acceptance Chief Executive Landon Star r told Auto Finance News . Subprime lenders have a responsibility to become more efficient and avoid tightening lending standards, when possible, he said. “We have a sociological role in trying to help as many people be able to finance a vehicle so that they can get their jobs, they can keep their jobs, they can climb out of the turbulent environment they may have found themselves in, but the fact of the matter is, we all have to operate companies in a profitable way. … When losses start climbing … we have no choice but to tighten that credit access.” — Landon Starr, Arivo Acceptance The DealerTrack Credit Availability Index rose to 101.3 in February, its highest level since June 2022, up 5.6% YoY and 1.3% month over month , according to Cox Automotive data published March 10. [caption id="attachment_58359713" align="alignnone" width="1280"] (Courtesy/Cox Automotive)[/caption] However, the approval rate for auto loans fell 40 basis points (bps) YoY and 40 bps MoM to 70.9%, marking the second consecutive month of approval rate declines, according to Cox. Lenders’ risk appetites can vary, with some adjusting to “support the growing subprime borrower base,” Andy Mayers , lender solutions strategist at Cox, told AFN. The share of subprime borrowers increased 320 bps YoY and 180 bps MoM to 17.5% in February, according to Cox. Other reasons the index increased, Mayers said, include: Strong tax returns in 2026 enabling consumers to purchase used vehicles; A dip in leasing, which has led to more used-car sales and loan applications; and Subprime market growth, partially due to the resumption of student loan debt reporting leading to more customers relying on tax returns for down payments. 72-month-plus terms hit record The increase in credit availability comes as more auto lenders offer longer-term loans. Arivo Acceptance is extending to 84-month terms in “select scenarios,” where an 84-month loan on a reliable vehicle may incur less servicing costs than a 72-month loan on an unreliable vehicle, Starr said. “It’s not in the lender’s best interest to have a vehicle that doesn’t stay on the road, because one of the strongest correlations to default is if you can’t keep a vehicle operable,” he said. Otherwise, 72 months has been Arivo’s maximum term, he added. Customers with West City Valley, Utah-based lender USAA have not materially shifted toward 84-month terms, in part because it keeps the extended term “very controlled from a credit lens,” Head of Product and Pricing, Consumer Lending Scott Serpico told AFN . The weighted average life of 84-month-term loans has not changed compared to shorter terms, he said. That means consumers may be taking a short-term drop in monthly payments but holding more negative equity on their trade-ins, he said. “Eighty-four months is good for the right member at the right time with the right appetites … but I would be cautious to push everything out to the 84 months, because it typically doesn’t change behavior on the back end.”— Scott Serpico, USAA The share of loans with longer than 72-month terms increased 480 bps YoY and 130 bps MoM to 29.3% in February, the highest share since Cox started recording the credit availability index in January 2015. Other key metrics, according to Cox, include: The average down payment increased 70 bps YoY and 20 bps MoM to 13.6%; The share of borrowers with negative equity rose 540 bps YoY and 170 bps MoM to 58%; and The yield spread rose 39 bps MoM to 7.53%, the average contract rate rose 29 bps MoM to 11.2% and the 5-year Treasury yield dropped 10 bps MoM to 3.68%. The industry may stabilize if interest rates fall and unemployment stays stable, and 2026 could bring significant growth for subprime financing, Charles Bradley , CEO at Consumer Portfolio Services , said during the company’s March 11 earnings call. “Generally, other than the Iran war, which hopefully will go away pretty soon, the economy seems very stable and strong. … Our goal in 2026 is to focus on growth,” he said. Auto Finance News will present multiple invaluable events for industry professionals in 2026, starting with Auto Finance Summit East and Auto Finance Capital Summit in May. Register by March 27 for early-bird savings. To see event agendas and register, visit autofinance.live .

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