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The landscape of auto lending is shifting, with TransUnion forecasting a 1.5% decrease in auto loan originations for 2026. This comes as car prices continue to climb, creating persistent affordability challenges for consumers. While 2025 saw a boost in purchases as buyers aimed to avoid tariffs and capitalize on federal EV tax credits, the market dynamic is poised for change.
Paradoxically, TransUnion’s research also highlights robust underlying demand, with four out of ten U.S. adults planning a vehicle purchase, primarily in 2026. However, cost concerns (cited by 53%) and economic uncertainty (44%) are significant deterrents for those not planning to buy. This dual trend underscores a critical need for auto lenders: finding innovative ways to offer affordable credit solutions as vehicle prices remain elevated.
Navigating Evolving Consumer Behavior and Market Opportunities
TransUnion’s analysis reveals fundamental shifts in how consumers approach car buying, necessitating a re-evaluation of lender strategies for outreach and targeting. Amidst these changes, new avenues for growth are emerging, particularly within the financing of electric vehicles (EVs) as federal policies continue to evolve.
The Persistent Affordability Challenge
Key indicators highlight the increasing financial strain on car buyers:
- New-vehicle prices reached a record average of $49,191 in January, a 1.9% increase year-over-year, according to Kelly Blue Book.
- The average monthly payment for new vehicles rose to $782 in Q4 2025, up nearly 3.5% from 2024 (S&P Global Mobility).
- For used vehicles, the average monthly payment hit $538 in Q4, reflecting a 3.1% year-over-year increase (S&P Global Mobility).
- The average amount financed for new cars in Q4 was $44,495 (+4.9% YOY), and for used cars, it was $27,278 (+4.3% YOY) (S&P Global Mobility).
- The scarcity of lower-end new cars is growing, with models like the Mitsubishi Mirage and Nissan Versa (previously under $20,000 MSRP) being discontinued.
According to Satyan Merchant, SVP and automotive and mortgage business leader at TransUnion, these price and payment hikes are channeling a larger share of new loan originations towards super prime borrowers and pushing up average vehicle prices as higher-end models dominate sales.
Exploring Leasing as a Strategic Option
While 87% of Americans planning a vehicle transaction intend to buy, 13% are considering leasing. For new vehicles, this trend is even more pronounced, with approximately one in four new cars being leased rather than purchased. Merchant emphasizes that leasing is gaining traction, especially among younger generations. Seventeen percent of Gen Z and Millennials express interest in leasing, compared to just 7% of Baby Boomers.
Leasing often presents an opportunity for lower monthly payments compared to financing a purchase, a significant advantage in an environment of higher auto loan rates. In 2025, nearly half of EV transactions involved leasing, partly due to the lease tax credit being more accessible than the purchase tax credit. Even with policy shifts, Merchant notes that EV manufacturers continue to offer attractive lease deals, aligning with younger generations’ interest in EVs for their lower fuel costs, reduced emissions, and innovative technology.
An innovative approach seen in the market is the “Lease-Like Auto Loan” offered by institutions like Atlantic Federal Credit Union. This product provides the economic benefits of a lease while allowing the consumer to own the vehicle, offering flexibility at the term’s end to refinance, trade in, or pay off the residual value.
The Electric Vehicle Market: A New Frontier for Lenders
Despite the expiration of some tax credits, interest in electric and hybrid vehicles continues to surge. TransUnion’s research indicates that among prospective buyers, 50% prefer gas-powered vehicles, 33% favor hybrids, and 16% are looking at EVs. Much of this interest is rooted in affordability concerns, as EVs can offer lower operational costs in many regions. However, their higher upfront purchase price often leads younger Gen Z buyers to stick with gas-powered options for now.
The market is seeing a shift in EV pricing. Following federal policy changes, some manufacturers have significantly reduced EV prices. Furthermore, used EV prices have declined at a faster rate than used gas cars, creating a growing pool of more affordable electric vehicles. Merchant, an EV driver himself, points out that these factors are generating new financing opportunities for lenders, making used EVs some of the most budget-friendly options available today.
A key challenge for lenders in this evolving segment is a “data drought.” The novelty of EVs and recent tax policy changes mean there’s a lack of reliable data on residual values for used electric vehicles. This volatility is expected to persist for some time, requiring careful consideration from financial institutions.
Expanding Reach: Adapting to Evolving Consumer Shopping Habits
Local auto lenders aiming to grow or maintain their portfolio must adjust their perspective. TransUnion’s consumer research highlights a significant trend: buyers are willing to travel further than ever to secure the right vehicle at the right price.
- 30% of surveyed consumers would drive up to 100 miles for their desired purchase.
- 10% are prepared to travel beyond 100 miles for an optimal deal.
This means local dealers can no longer rely solely on local demand, and by extension, local lenders must cast a wider net to capture financing business. Merchant emphasizes that the traditional model of relying solely on neighborhood auto dealers is evolving, urging lenders to think beyond immediate geographical confines to grow their market share.
Digital Marketing: Reaching Borrowers in the Modern Era
The shift towards online car shopping is undeniable, with fewer consumers spending weekends browsing dealer lots. This digital migration means lenders must establish a visible presence much earlier in the car-buying journey. Merchant predicts that shoppers will increasingly leverage internet tools—and soon, AI-powered tools—to find the best vehicle and price. Therefore, lenders must deploy targeted, personalized offers across the right digital channels.
Given the overarching affordability challenge, precise, credit-based targeting is paramount. As Merchant explains, marketing a high-end luxury vehicle to a prospect whose credit only supports a $500 monthly payment is inefficient for both the lender and the dealer. Personalized and relevant offers, delivered through effective digital strategies, will be key to converting prospects in this new environment.
Source: Thefinancialbrand.com