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1 [1] (March 10, 2026)

handle is hein.crs/govette0001 and id is 1 raw text is: Congre Won I Resedrch Service I ~ or ning legi I live leba ~ 'e 914 0 March 10, 2026 The Automobile Loan Market: Policy Issues for Congress An automobile loan allows a consumer to finance the purchase of a new or used car. Auto loans are usually structured as closed-end installment loans in which a consumer pays an amount of money each month for a predetermined time period, frequently three to seven years. Lenders often require consumers to make down payments to obtain the loans. An auto loan is secured by the automobile, so if a consumer cannot repay the loan, the lender can repossess the car to recoup the loan's cost. Auto loans are the second-largest consumer credit market, behind mortgages. At the end of 2025, there were 108 million open auto loans, and outstanding auto loan debt totaled $1.67 trillion. Overview ofthe Auto Lendin Market Demand for auto loans is related to car prices. As the prices of cars increase, consumers may take out larger loans or take out loans instead of paying in full. A spike in car prices from 2020 to 2022 led to an associated surge in the number of total auto loans and their average size. Car price increases were driven by a variety of factors, primarily macroeconomic inflation impacting the prices of underlying supplies and disruptions across the automobile supply chain but also integration of new vehicle technologies, safety and emission regulation compliance, production planning changes from manufacturers, and markup changes at dealerships. The average price of new cars peaked in 2023 and remains at roughly the same level today. Rising interest rates have also pushed the total cost of financing upwards. The financing rate for new automobiles on 48-month loans from commercial banks increased from 4.6% in November 2021 to 8.5% in November 2023 with a gradual decline to 7.5% in November 2025. Bank rates are generally lower than those offered by dealerships or by nonbank lenders. In total, the average monthly payment for car loans increased from $470 in January 2020 to $600 in January 2023. In 2025, the average loan term for new cars was 69 months. Since 2010, there has been a trend toward longer automobile loan terms, which peaked in 2020 and have gradually declined since. This trend may be due in part to rising vehicle costs, with consumers extending loan terms to manage payments. This could also be driven by consumers keeping their cars longer. A longer loan term in general decreases a loan's monthly cost but increases its total cost, as consumers pay more interest. Some evidence indicates that longer auto loan terms (longer than five years) have higher delinquency rates than shorter loans do, even after controlling for creditworthiness and macroeconomic characteristics. These longer loan maturities may increase the share of loans with negative equity as cars age and decline in value. The percentage of auto loan balances that are 90 or more days delinquent, inclusive of severely derogatory balances (e.g., charge-offs, collections), has increased from a recent trough of 3.7% in the fourth quarter of 2022 to 5.0% in the third quarter of 2025. Current delinquency rates are consistent with those immediately before the pandemic, as delinquency was 4.9% in the fourth quarter of 2019. These increases were even larger in the 30-day auto loan delinquency rates (excluding severely derogatory balances). The rising delinquency rate since 2022 has been linked to subprime and near-prime borrowers with loans originated from 2021 to 2023. Research from the Federal Reserve finds that such borrowers have been more negatively affected by high car prices than by high interest rates. Elevated post-pandemic car prices may therefore continue to play a role in current delinquencies. Auto Loan Orgination Market Auto loans are originated in two ways: directly with lenders or indirectly working through auto dealers. The vast majority (83% of loans, according to one paper) are obtained indirectly. These indirect auto loans are forwarded from auto dealers to nonbank finance companies, banks, and credit unions. In the indirect lending process, the dealer forwards information about the prospective borrower to one or more lenders and solicits potential financing offers. Often, the dealer is compensated for originating this loan through a discretionary markup, which is the difference between the lender's interest rate and the rate that a consumer is charged. Such markups can sometimes be substantial. Roughly half of auto loans are originated by depository institutions, and they tend to serve prime borrowers with lower delinquency rates. Captive finance companies, which are subsidiaries of car manufacturers, finance roughly a fifth of auto loans. Captive and traditional depository loans usually have the lowest interest rates, typically due to the higher creditworthiness of their borrowers, subsidies by the manufacturers to the captives, or a relatively lower level of discretionary markup. Non-captive finance companies account for less than 10% of auto loans and have much higher average interest rates as they are for used cars and primarily subprime borrowers. Some auto dealerships directly extend credit themselves (roughly 10% of auto loans), calling this practice Buy Here, Pay Here and commonly marketing to consumers with subprime or no credit histories. These dealers do not work on behalf of other lenders but keep the loans on their