Why Are Auto Loans Surging in the Low-End Segment of Prime Customers?

For two consecutive quarters, auto loans and leases slightly above subprime risk levels have surged year over year. The growth is concentrated in the 620-659 credit score range, and according to the latest New York Federal Reserve data, the trend currently has a limited impact on the overall market.

The New York Fed's August 11 Household Debt and Credit Report noted that "the credit quality of newly originated auto loans has deteriorated slightly from the elevated levels of a year ago." The report covers new and used vehicle loans and leases, with statistics aggregated across all risk tiers.

Data show that the median credit score at origination for all risk tiers combined in the second quarter of 2026 was 716, down from 724 in the same period last year. The New York Fed defines subprime as a single category with credit scores below 620, and the industry commonly uses 620 as the dividing line between subprime and prime credit.

Analysts are closely watching the recent growth in this "near-prime" risk tier. At the same time, two quarters of data do not necessarily constitute a trend, and the "super prime" risk tier with credit scores above 760 still holds the largest share of auto loans and leases.

Possible reasons behind the growth

Based on multiple interviews, the following scenarios may explain this phenomenon:

• Intensified market competition:Declining profit margins are prompting automakers and lenders to pursue greater sales volumes again, even if it means moderately increasing risk exposure.
• K-shaped economic divergence:The population in the 620-659 range may be growing, reflecting a divergence between super prime "haves" and relatively "have-nots," with some borrowers slipping from higher credit tiers.
• Expansion of dealer-affiliated finance companies:New captive finance companies under large dealer groups, as well as finance arms of used-vehicle retailers like CarMax, may be driving growth in lower-prime lending. Auto lender Ally Financial has already reported that it is taking on more loans around the subprime boundary.

Data details: significant increase but from a low base

Loan volumes in this category have surged in recent months. New York Fed data show that auto loan originations in the 620-659 range jumped 55.4% compared to the second quarter of 2025, with a year-over-year increase of 53.6% in the first quarter of 2026. It should be noted that these increases, compared to the low base in the same period last year, may exaggerate the percentages. In the second quarter of 2026, this range accounted for 13% of all originations, up from 9.4% in the same period last year; in the first quarter of 2026, it was 11.8%, compared to 8.5% in the prior-year period.

"High-end consumers and high-end portfolios have always been viewed as extremely resilient—arguably near or at peak levels. Everything is both a potential problem and a potential opportunity," John Murphy, founder and managing partner of Murphy Automotive Partners, told WardsAuto in an August 13 interview. "So," he added, "expanding credit categories might be a way to support sales without taking on extreme risk—there may be a safe path without necessarily increasing subprime itself."

Super prime still dominates, but share shifts are subtle

In the second quarter of 2026, the 760+ range accounted for 40.8% of all originations, the largest share among the five risk tiers tracked by the New York Fed, up from 40% in the same period last year. For comparison, in the second quarter of 2019 (pre-pandemic), super prime loans and leases made up 31.6%.

Brian Gordon, president of Dave Cantin Group, told WardsAuto in an August 17 phone interview that in recent years, the composition of auto lenders has changed with the growth of captive finance companies under retail groups. These retailer-owned captives are more willing than banks and manufacturer captives to originate higher-risk loans.

"Retailer captives like Lithia, AutoNation, and CarMax have increased their share of business," Gordon said. He noted that as a whole, retailer-owned captives have "doubled their volume" over the past decade. "Their standards are different from banks because they are more integrated into the auto business and are willing to take on more risk," he explained.

Delinquency rates rising: structural shift rather than a sign of deterioration?

Satyan Merchant, senior vice president of TransUnion's auto and mortgage business, told WardsAuto in an August 6 phone interview that the current relatively high auto loan delinquency rates naturally stem from an increased share of lending to lower-credit-score consumers, rather than from more existing borrowers falling behind on payments.

"On the surface, these numbers could look alarming or concerning if taken out of context," Merchant said. He cited TransUnion's second-quarter Credit Industry Insights Report released August 6, which showed that serious delinquencies (60+ days past due) accounted for 1.51% of auto loans and leases, only slightly above the 1.49% in the same period last year. "Origination growth over the past few quarters has been concentrated in the subprime and near-prime segments, which naturally leads to a modest rise in delinquency levels," Merchant said.