Subprime lenders navigate ‘new normal’ with cautious optimism

Subprime lenders looking to regain momentum in 2025 are expressing measured optimism as they navigate consumer stress and uncertainty in the post-pandemic lending environment. "What's the new normal?” Chief Executive Scot Seagrave of subprime lender FinBe asked Auto Finance News . “I don't know what the new normal is yet.” That question — yet unanswered — is shaping how lenders approach growth, risk and portfolio performance this year. Subprime lenders like FinBe are treading carefully, looking for signs of stability while resisting the urge to ramp up originations too quickly. [caption id="attachment_58337382" align="alignnone" width="794"] (Photo/Canva)[/caption] “We’re seeing improvement year over year,” Seagrave said. “But it’s not where we want it to be.” However, signs of stabilization are emerging. Vehicle prices have largely plateaued after major swings during the past few years. In February, the average new vehicle transaction price rose 1% year over year to $48,039, according to Kelley Blue Book . Meanwhile, the average retail listing price for used vehicles fell 1% YoY to $25,006, according to Cox Automotive . Still, uncertainty persists with auto tariffs expected to add thousands to the cost of a car , though the full impact is unknown. Finding ‘stable footing’ Ft. Lauderdale, Fla.-based FinBe , is focused on finding stable footing as the market sorts itself out, Seagrave said. The lender is seeing YoY improvement, but performance still isn’t where the company wants it to be, he said. As such, FinBe is staying disciplined and conservative, focused on steady progress and strengthening its existing portfolio as it awaits further market stability, Seagrave said. FinBe’s measured approach mirrors a broader trend among subprime lenders that are cautiously optimistic but unwilling to overextend. With market stabilization in its early stages, tariff impacts looming and consumer stress still a factor , lenders are prioritizing portfolio stability and disciplined growth while waiting for clearer signals of a sustained recovery. Pluses, minuses The subprime market remains a mixed bag, with data showing both encouraging signs and ongoing challenges. The Dealertrack Credit Availability Index rose 3% YoY in February, reaching its highest level since December 2022, indicating that credit access is improving after being constrained in recent years by rising interest rates, according to Cox Automotive. Subprime loans accounted for 14.3% of all auto loans in February, Jonathan Gregory , senior manager of economic and industry insights at Cox, told AFN . Its share is also still trailing the market as a whole coming off record lows in credit availability, he said. Subprime credit availability is “still about 3 percentage points worse than the total market,” Gregory said. “We're still tracking behind, but it's been improving. At the end of [August 2024], we were close to rock bottom.” Additionally, subprime and deep subprime shares of auto outstanding loans dipped in Q4 to 12.4% and 1.72% respectively, and have declined YoY every year since 2019, according to Experian . [caption id="attachment_58350234" align="alignnone" width="862"] (Courtesy/Experian)[/caption] The shrinking share suggests tighter underwriting and a more cautious lending environment in recent years. That tightening is also contributing to something both reassuring and concerning for subprime lenders: While auto delinquencies are beginning to stabilize overall, progress remains slower in the subprime segment. The 30- to 59-day delinquency rate for subprime loans stood at 9.47% in February, up 23 basis points (bps) from a year earlier but down 49 bps month over month, continuing a recent downward trend, according to Kroll Bond Rating Agency (KBRA). Delinquencies of 60-plus days sat at 6.47% in February, up 28 bps YoY but down 1 bps MoM, according to KBRA. In addition to other stabilizing market metrics, the Federal Reserve slashed the federal funds rate by 1.25 percentage points over three rate cuts last year to a range of 4.25% to 4.5%, Stabilized rates are just as important as a rate decrease in the subprime space, Agora Data CEO Steve Burke told AFN . Agora is an AI-focused subprime lending fintech that provides lenders capital to originate subprime auto loans. Stabilization “makes it easier to do some forecasting in the finance company world,” he said. “Stabilizing rates help us do all of our projections , and where we've seen others get in trouble is by blowing past some performance triggers because of higher interest rates.” Seasonal demand prompts balancing act Lenders are also balancing seasonal growth with portfolio performance as tax refunds boost consumer demand and support portfolio performance. Sandy, Utah-based Arivo Acceptance is prioritizing c redit performance in 2025, CEO Landon Starr told AFN . Even so, Arivo expects to double originations this year to between $350 million and $400 million amid improved consumer demand and strategic refinancing, he said. “Portfolio performance improvement is a big catalyst toward lenders being able to scrape back a little bit more capital,” Starr said. “Portfolio performance improvement is a big catalyst toward lenders being able to scrape back a little bit more capital." -- Landon Starr, Arivo Acceptance While delinquencies have improved but remain above historical norms, tax refunds should help consumers regain financial breathing room, he said. A stronger-than-usual surge in refund season applications at Arivo underscores the trend, with volume tracking 30% to 40% higher — up from the typical 20% to 30%, Starr said. Agora Data saw a similar trend, with application volume up 72% YoY through February, rising from the high 60s percentage range in December, Agora’s Burke said. The temporary cash boost, however, shouldn't be seen as a long-term affordability solution for subprime borrowers, Burke said. “Just because a consumer gets extra money doesn't mean that they're all of a sudden a better credit risk,” Burke said. “We want to make sure consumers can afford the vehicle they're buying and don’t overbuy because they have tax money.” “Just because a consumer gets extra money doesn't mean that they're all of a sudden a better credit risk." -- Steve Burke, Agora Data Subprime lender SameDay Auto , for example, has originated minimal loans thus far in 2025 as the company focuses on servicing its existing portfolio, Armando Hidalgo , director of servicing, told AFN . The Irving, Texas-based lender instead expects to pick up origination volume in Q2 to meet its goal of doubling the portfolio to $60 million in 2025, Hidalgo said. “Once you turn on that spigot in franchise, there’s no turning it off. You’ve got to make sure you’ve got enough to feed that beast,” he said. Slower, smarter growth While the Federal Reserve's January 2025 Senior Loan Officer Opinion Survey indicated that auto credit standards remained nearly unchanged from a year earlier, subprime is seeing some tightening. As subprime lenders balance growth and risk, many are tightening underwriting standards rather than digging into riskier borrower profiles. Irving, Texas-based Tricolor , for one, has shifted its focus to near - prime borrowers, Mauricio Delgado , chief strategy officer, told AFN . The lender is prioritizing borrowers with FICO scores around 670, which it considers a “sweet spot,” although about 55 % of its portfolio consists of borrowers with out FICO scores, he said. “What we're doing is we're restricting sales to lower FICOs , while providing more concessions to the higher FICO borrowers,” Delgado said. The underwriting changes, in part, have helped the lender grow its origination volume so far this year, he said. In March, Tricolor’s origination volume grew more than 30% to between $85 million and $90 million , he said. For 2025, Tricolor expects 20% to 30% origination volume growth, he added. The lender’s portfolio stands at $1.5 billion, Delgado said. [caption id="attachment_58338803" align="alignnone" width="840"] (Photo/Canva)[/caption] FinBe is also looking to prioritize more traditional subprime loans versus riskier loans to consumers without FICO scores, Seagrave said. Part of the shift is to focus less attention on non-FICO score borrowers, such as undocumented immigrants, as the Trump administration's immigration policy could put undocumented immigrants at risk, he said. Seagrave, however, said he doesn’t expect deportations to play a significant role in credit performance. As delinquencies have crept up, subprime borrower profiles have deteriorated modestly, especially in the deep subprime sector, he said. “The deep subprime borrower today probably has a slightly lower FICO score than a year or two ago,” Seagrave said. “Folks have fallen behind on credit cards or other obligations. We’re not seeing a major deterioration, but it’s noticeable.” “Folks have fallen behind on credit cards or other obligations. We’re not seeing a major deterioration, but it’s noticeable.” -- Scot Seagrave, FinBe Tariff effects a wild card As subprime lenders express cautious optimism for 2025, looming auto tariffs pose a potential challenge — one that could bring both risk and opportunity to the segment. Auto tariffs are set to begin on April 3 , and all indications show new-vehicle prices will rise. Tariffs could raise U.S.-made car prices by $3,000 and add over $6,000 to vehicles from Canada or Mexico, Cox Automotive Chief Economist Jonathan Smoke said on a March 26 forecast call, while an Anderson Economic Group study found that new-vehicle prices could climb as much as $12,000. Agora’s Burke, for example, said the tariff effects could echo the supply chain disruptions of 2022, with risks and upsides. “If tariffs were to increase used-car prices, all the finance companies that are sitting on repossession inventory would also get higher recovery rates, which could reduce or eliminate any deficiency balance that a consumer may owe,” he said. Subprime lender Credit Acceptance Corp. expects a similar scenario but noted that higher used-car prices would dampen affordability, which already is a challenge in the market, CEO Ken Booth told AFN . “In practice [tariffs will be] good for business recoveries, but it hurts consumers from an affordability standpoint,” he said. Regardless of how tariffs play out, there will be some disruption, subprime lender Arra Finance CEO Kenn Wardle told AFN . Arra, formerly Solera Auto Finance , is reinforcing its focus on maintaining 10% to 12% payment - to - income ratios and will likely tighten its loan-to-value (LTV) thresholds, which typically go above 130%, he said. “If tariffs stick , then we’ll be more conservative,” Wardle said. As subprime lenders chart a path forward in 2025, they must balance seizing growth opportunities with managing risk, FinBe’s Seagrave said. “You try to build in some cushion,” he said. “But if you build too much, then you’re not competitive and won’t ever capture the deal.” Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information. Early-bird registration is available here .

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