The following post is part of a series of blogs written by MeridianLink® Partners who will be attending MeridianLink LIVE! To learn more about the event, click here.
The automotive and auto lending landscape is notoriously unpredictable, and 2025 is shaping up to be no exception. Following the Federal Reserve’s three consecutive rate cuts starting in September 2024, there was initial optimism for continued rate reductions in 2025. However, that optimism began to wane after the third rate cut in December.
Regardless of whether rates remain steady, decrease, or even increase this year, there are crucial data points that auto lenders must consider when forming their outlook for the remainder of the year. Shifting consumer demographics, advancing technology, and ongoing economic pressures present both challenges and opportunities for adaptable lenders.
According to the National Credit Union Association, the auto loan delinquency rate for federally insured credit unions rose to 97 basis points (bps) in Q4 2024, up from 90 bps in Q4 2023 and 61 bps in Q4 2022. This increase highlights the impact of inflationary pressures on household budgets, a critical metric in auto lending.
In response, auto lenders have been pulling back.
As liquidity pressures began to ease, lenders started issuing fewer auto loans. Banks initiated this pullback in Q1 2023, followed by credit unions in Q1 2024. This trend has resulted in nine consecutive quarters of negative auto loan growth for banks and five for credit unions, as they aim to avoid future losses.
Despite stabilizing vehicle prices, on-lot supply, and borrowing costs, there is ample opportunity for lenders to re-enter the auto lending market with the right tools and perspective.
From a consumer standpoint, purchasing a new vehicle is often driven by necessity rather than desire. As the average age of vehicles in operation continues to reach record highs, this need is expected to grow. Open Lending’s 2025 Vehicle Accessibility Report reveals that 70% of near- and non-prime consumers plan to purchase a vehicle within the next 24 months. Additionally, 78% indicated that another rate cut this year would increase their likelihood of purchasing.
Credit unions, in particular, are focusing on areas to drive member growth and attract younger members, with auto lending being a key strategy.
However, lending to younger consumers, such as millennials and Gen Z, comes with specific requirements. These generations are twice as likely to be thin-file, near-prime consumers compared to Gen X or Baby Boomers. They also expect a swift loan approval process, which many lenders struggle to meet. In a recent study, only one in ten of these borrowers received a decision in seconds, and 71% of Gen Z borrowers said they would return to the same lender for future banking needs if they experienced a fast response on an auto loan.
To balance making accurate decisions and moving quickly, auto lending underwriting teams should look toward technology as the solution. Platforms like Open Lending’s Lenders Protection provide extensive data to evaluate both the borrower and the vehicle, offering a comprehensive risk assessment. Automation does not mean losing control of the decision-making process; rather, it is essential for making consistent, faster decisions with more accurate expectations of loan performance.
While the year ahead is filled with uncertainties, the performance of your auto loan portfolio and the source of your younger members should not be among them.
