AUTO LENDING TRENDS: WHAT TO EXPECT IN 2025

In 2025, digital transformation, sustainability, and adaptability to economic pressures will drive auto lending trends. For example, more and more lenders are using AI for credit risk analysis, personalized loan offers, and streamlined application processes. In addition, electric vehicles (EVs) are getting tailored financing solutions as governments push for green technologies. Consumers’ preferences for flexible financing options like subscription-based car ownership are also shaping the auto lending market.

10 Auto Lending Trends to Track in 2025

Keeping up with consumer preferences means embracing technology and practices that can result in higher risks. Understanding auto lending trends will help lenders reduce default risks. Below is a list of the top ten auto lending trends to watch in 2025.

10 Auto Lending Trends: What To Expect in 2025
Trend	Description	Importance
1) AI for Credit Scoring	More lenders are using AI to evaluate applicants and reduce loan approval times.	✔ Ensures accurate risk assessments ✔ Expands credit access ✔ Improves operational efficiency
2) Electric Vehicle (EV) Financing	There has been a marked rise in EV financing in response to greater EV adoption.	✔ EVs have higher upfront costs ✔ Tailored loans help consumers transition to sustainable transport options
3) Subprime Lending	Lenders are cautiously expanding subprime loans due to demand from underserved credit segments.	✔ Balances risk and opportunity by serving borrowers with credit challenges ✔ Helps with addressing default risks
4) Flexible Payment Options	Flexible payment options include auto financing based on subscriptions and payment holidays.	✔ Appeals to younger consumers seeking financial flexibility ✔ Enhances customer retention
5) Digital Loan Platforms	Online loan applications and digital lending platforms are becoming mainstream.	✔ Simplifies the borrowing process ✔Attracts tech-savvy customers ✔ Reduces operational costs
6) Loan Terms Adjustments	Extended loan terms to accommodate higher vehicle prices.	✔ Helps make monthly payments affordable ✔ May increase the total cost of borrowing
7) Rising Delinquencies	Economic uncertainty is contributing to an uptick in loan delinquencies.	✔ Prompts lenders to tighten credit policies and focus on proactive loan recovery strategies
8) Telematics Data Integration	Some lenders are using telematics (vehicle usage and performance data) to inform loan terms and reduce delinquency risks.	✔ Encourages responsible vehicle use ✔ Provides data-driven insurance and loan repayment solutions
9) Sustainability Metrics	Lenders are incorporating sustainability metrics into auto loan portfolio strategies.	✔ Aligns with corporate sustainability goals ✔ Attracts environmentally conscious borrowers
10) Embedded Financing Options	Automakers and dealerships are offering financing directly within their platforms at the point of sale.	✔ Simplifies the purchasing process ✔ Increases lender competition at the dealership level

Let’s take a deeper dive into each trend:

AI for Credit Scoring

Increasingly, lenders are turning to AI and machine learning for credit scoring and risk assessment. The market for AI for credit scoring is predicted by InsightAce Analytics to grow at a 25.9% compound annual growth rate (CAGR) through 2031. These technologies can quickly analyze a lot of data, including non-traditional indicators like utility payments or rental histories, to assess creditworthiness. AI can streamline loan approvals, reduce biases in decision-making, and increase credit access for underserved populations. Lenders can also use AI to identify risks earlier, allowing them to tailor loan offerings that balance profitability with inclusivity.

EV Financing

In the third quarter of 2024, EV sales in the US reached record highs, with an 11% year-over-year increase. EV sales will keep growing in 2025, and financing solutions will evolve. To offset higher upfront costs for EVs, loans usually have longer terms or come with government incentives. Many lenders offer EV buyers specialized products, like reduced interest rates or flexible payment plans. If they adapt to this trend, lenders can capture a more significant share of this burgeoning market.

Subprime Lending

Lenders are cautiously expanding into subprime lending to meet growing demand from borrowers with lower credit scores. This segment offers many revenue opportunities, but default risks are high. To mitigate these risks, lenders are using AI and behavioral analytics. Lenders are also exploring innovative ways to extend credit to underserved groups, like co-signing or secured loans.

Flexible Payment Options

Consumers want more flexibility with auto loan repayment plans. Lenders are responding with payment holidays, adjustable schedules, and even subscription-based car ownership. Younger generations prioritize financial flexibility, so these features appeal to them. With this type of adaptability, customers will be happier, and delinquency rates will go down.

Digital Loan Platforms

With online loan platforms becoming the norm, the digital revolution is reshaping auto lending. Applications, approvals, and repayments can be made online in minutes. These platforms are seamless and easy to use, so tech-savvy borrowers love them. Lenders can process more loans while keeping customer service high, which reduces costs.

Loan Terms Adjustments

Extended loan terms, like 84-month agreements, are becoming more common as car prices rise. While this helps consumers manage immediate costs, it also increases interest payments. Lenders have to balance offering attractive terms with managing long-term depreciation risks.

Rising Delinquencies

Volatility in the economy is contributing to an increase in auto loan delinquencies. In the second quarter of 2024, 4.4 percent of auto debt was at least 90 days late, up 16 percent from the same period in 2023. To address this trend, lenders are implementing proactive strategies like personalized repayment plans and early intervention programs. Also, they are using advanced analytics to predict and prevent delinquencies.

Telematics Data Integration

More and more auto lenders are using telematics to track vehicle performance and usage. Lenders can offer usage-based loans and insurance based on this data. For example, borrowers with low vehicle usage may get reduced payments. This data-driven approach helps borrowers manage costs and lenders tailor loan terms.

Sustainability Metrics

Auto lenders are paying more attention to sustainability metrics. Many lenders are offering green financing options, like low rates on electric vehicles and loans tied to carbon offset programs, to align their portfolios with sustainability. These initiatives position lenders as leaders in corporate social responsibility, which boosts their brand and market share.

Embedded Financing Options

Financing options are being integrated into dealership platforms, making car buying easier. There’s now financing at the point of sale, often with competitive rates. Lenders that partner with automakers or develop their own embedded solutions can gain an edge in this market.

Adaptability, innovation, and consumer-centric strategies will be key to succeeding in the auto lending industry in 2025.