Canadian Auto Lending Trends for 2026

Canada’s auto‑finance ecosystem is entering a new phase, one where rising vehicle costs, rate pressures, and shifting consumer behavior are redefining how credit is extended and managed.  

Auto‑loan balances are now growing faster than other consumer credit categories, while used‑vehicle supply constraints and higher interest rates are creating fresh challenges for lenders. To remain competitive, lenders must rethink not just how much they lend but how they lend. 

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With that in mind, this article examines the key Canadian auto lending trends shaping the market and what lenders must do to adapt.

Top Canadian Auto Lending Trends for 2026
Trend	Risk & Challenges	Strategic Opportunities
Delinquencies Rising Among Key Borrower Segments	Younger and subprime borrowers face higher financial strain, driving up delinquency rates and portfolio risk	Use trended and alternative data Segment outreach by borrower type, and deploy predictive analytics
Digital & Origination Transformation	Legacy origination systems and manual workflows lead to slower approvals and higher application abandonment	Modernize origination with:cloud automationdigital document handlingreal-time decisioning
Used Vehicle Supply & Remarketing Pressure	Limited late-model inventory and volatile EV residuals complicate remarketing and elevate recovery-value risk	Adopt dynamic valuation toolsExpand remarketing partnershipsRefine residual forecasting
Affordability & Interest-Rate Squeeze	High vehicle prices and sustained interest rates compress affordability, especially for first-time and subprime borrowers	Introduce:affordability-based underwritingflexible payment structuresvalue-add options
Auto-Loan Fraud Escalation	Application fraud, synthetic IDs, and falsified employment data are rising sharply across digital channels	Embed real-time identity and income verificationIntegrate fraud analytics into originationMonitor early-payment performance

1. Delinquencies Rising Among Key Borrower Segments

Younger consumers now represent some of the highest delinquency rates across both credit cards and auto loans. In Q2 2025, Canadians under the age of 36 saw their average non-mortgage debt rise to $14,304, accompanied by a sharp increase in 90+ day delinquency rates to 2.35%: a 19.7% year-over-year jump and a 1.3% increase from the previous quarter. This highlights the growing financial strain caused by inflation, rising living costs, and limited access to affordable credit.

At the same time, the rest of the consumer population saw a slight 0.1% quarter-over-quarter decline in delinquency rates from Q1 2025. However, the broader year-over-year trend still points upward, with total delinquencies up 12.4% compared to 2024.

What This Means for Lenders 

The steady rise in delinquency rates signals that Canadian lenders may need to rethink how they assess borrower risk. Traditional credit scoring alone may not be enough to capture the full picture, especially for consumers under financial strain. Lenders should consider:

• Expanding the use of alternative data, such as income stability, rent payments, and employment history, to gain a clearer sense of repayment capacity and financial resilience
  
• Segmenting delinquency risk by demographic to tailor outreach, restructuring, or hardship options more effectively
  
• Implementing early intervention tactics using predictive analytics and behavioral triggers to flag at-risk accounts before they become severely delinquent
  
• Strengthening borrower education around budgeting, credit management, and loan structure, especially for first-time borrowers navigating auto financing in a high-cost environment

Looking Ahead at DelinquenciesDelinquency trends are likely to persist as cost-of-living and interest rates remain elevated. Traditional one-size-fits-all strategies are no longer sufficient. Lenders investing in early detection, targeted interventions, and flexible repayment programs will be better positioned to manage credit risk cycles.

2. Digital & Origination Transformation

While Canada’s auto market faces pricing and supply headwinds, one longstanding tailwind continues to accelerate: digital financing. In 2025, 87% of Canadian auto shoppers expected to complete at least part of the process online, and 66% of new vehicle shoppers prefer a fully digital journey.

Lenders still relying on outdated systems risk higher abandonment rates, slower approvals, and lost deals to digital-first competitors.

What This Means for Lenders

Digital expectations are the default now. Lenders still relying on legacy origination systems should act quickly to avoid conversion loss and reputational drag. Key actions include:

• Modernizing the origination journey with automation, mobile-first interfaces, and digital document handling to meet borrower expectations for speed and convenience
  
• Integrating core systems (CRM, credit, verification, e-signature) to enable seamless, real-time workflows from application to funding
  
• Eliminating manual bottlenecks that slow approvals and increase the likelihood of application abandonment
  
• Redesigning user experience (UX) around borrower behavior and intent, using tools like pre-fill, auto-decisioning, and digital self-service portals to reduce friction and boost conversion
  
• Benchmarking conversion metrics across channels to spot weak points and prioritize high-impact improvements in the loan funnel

Looking Ahead at Digital TransformationWhile demand has remained resilient in recent quarters, multiple sources suggest that the Canadian auto market may see a gentle pullback in 2026.  Lenders that combine seamless digital origination with disciplined risk models will be best‑positioned to capture market share in a slower, more competitive environment.

3. Used Vehicle Supply & Remarketing Pressure

Inventory for used vehicles remains tight. Post-pandemic supply chain disruptions, elevated demand, and limited new vehicle production continue to limit availability. According to the Canadian Black Book, the used vehicle supply was projected to fall to approximately 1.57 million units in 2025, with further decline anticipated in 2026/2027. The average used car prices in Canada remain elevated, and in August 2025, were $33,986, reflecting a 7.78% year‑over‑year increase.  

Electric and hybrid models continue to complicate remarketing, with residual volatility stemming from battery degradation uncertainty and evolving buyer sentiment. Meanwhile, aging fleets and extended loan terms are shifting the timing and profitability of repossession resale.

What This Means for Lenders

As used vehicle shortages remain and residual values grow harder to predict, especially for EVs, Canadian lenders must recalibrate remarketing strategies to manage risk and protect recovery values. To respond effectively, lenders should:

• Reassess residuals for used vehicles, especially EVs and aging assets, using more conservative forecasts that reflect battery depreciation and extended loan terms
  
• Embed VIN-level history, mileage, and service data into pricing models to better anticipate resale value and minimize losses on repossessed or off-lease units
  
• Expand dealer and auction relationships to improve turnaround and returns on used vehicle remarketing, especially for high-demand models
  
• Tailor remarketing strategies for niche or lower-demand segments, such as first-gen EVs or sedans, using targeted pricing, reconditioning, and channel selection
  
• Monitor used vehicle buyer sentiment and residual trends to inform origination structures, lease terms, and repossession timing

Looking Ahead at Used Vehicle Supply & Remarketing Lenders investing in smarter valuation tools, faster liquidation strategies, and adaptive repossession planning will be best positioned to preserve recovery rates and limit portfolio drag, especially as residual risk intensifies across electric and aging vehicle segments.

4. Affordability & Interest-Rate Squeeze

Affordability remains a top concern despite modest rate stabilization. Average new‑loan amounts climbed to $35,586 in 2025, up nearly $1,600 year‑over‑year. 

Meanwhile, elevated APRs and tighter monetary policy continue to pressure consumer budgets, limiting access to financing, especially for first‑time and subprime borrowers. The phaseout of federal and provincial EV incentives has further removed key affordability levers for many buyers.

What This Means for Lenders

Lenders must rethink how they define and support affordability. With both rates and MSRPs still elevated, traditional loan structures can exclude creditworthy borrowers who are budget-constrained. Adapting strategies to meet evolving financial realities is crucial for preserving both volume and credit quality.

• Emphasize affordability-first underwriting using PTI, DTI, and cost-of-living benchmarks
  
• Offer flexible structures—deferred payments, tiered rates, or shorter-term promotional deals
  
• Provide tools for dealers and borrowers to estimate the total cost of ownership (TCO) early

Looking Ahead at AffordabilityLenders that succeed in the coming years will be those that recalibrate their product design, pricing strategies, and borrower segmentation to prioritize affordability without compromising portfolio performance. Expect to see greater emphasis on flexible structures, embedded education, and data-informed affordability benchmarking to sustain volume in a constrained demand environment.

5. Auto‑Loan Fraud Escalation

According to Point Predictive’s 2025 Auto Lending Fraud Trends Report, the auto-finance industry faced an estimated $9.2 billion in fraud loss exposure, the highest level ever recorded. First-party fraud, where borrowers or dealerships misrepresent income, employment, or identity, drove the majority of this risk, accounting for about 69% of total exposure.

At the same time, the Early Payment Default Risk Index, a proven proxy for fraud-linked originations, has climbed approximately 25% over the past 24 months.

What This Means for Lenders

The surge in auto loan fraud is a systemic challenge for lenders. Fraudulent applications are slipping through legacy underwriting systems. With rates rising sharply across Canada, lenders must shift from reactive fraud detection to proactive fraud prevention, which is embedded in the origination workflow.

• Introduce real‑time identity and income/employment verification at application time to catch misrepresentation early
  
• Embed fraud‑detection logic (synthetic identity screening, dealer‑channel oversight) directly into loan origination systems
  
• Monitor early‑payment performance (first 3‑6 months) as a leading indicator of potential fraud‑linked applications

Looking Ahead at Auto Loan FraudAs fraud tactics become more sophisticated with the use of AI‑generated documents, synthetic identities, and digital‑first channels, lenders who lean on manual‑only fraud controls will face growing risk. In the coming years, those who treat fraud detection as a strategic pillar will better protect margins and portfolio quality.

Staying Ahead of Canadian Auto Lending Trends

As economic pressure, fraud risk, and digital expectations reshape the landscape, Canadian auto lenders face a critical inflection point. Staying competitive will mean investing in technology that adapts faster, smarter, and with the borrower in mind.

Explore how defi SOLUTIONS can help you stay ahead of Canadian auto lending trends with confidence.