Smart Moves for Lenders: Securing Auto Loan Share as Market Cools in 2026

The landscape for auto lending is set to shift, with TransUnion forecasting a 1.5% decrease in auto loan originations for 2026. This projection arrives amidst ongoing challenges in vehicle affordability, as car prices continue their upward trajectory. The previous year, 2025, saw a temporary boost in purchases as consumers aimed to avoid impending tariffs and accelerate electric vehicle (EV) acquisitions before federal tax credits expired.

Despite this anticipated slowdown, a separate TransUnion study reveals robust underlying demand for vehicles and, consequently, for financing. Research indicates that four out of ten U.S. adults plan to buy a car, with the majority targeting 2026. However, a significant portion of those not planning a purchase cite cost concerns (53%) and economic uncertainty (44%).

This confluence of trends underscores a critical imperative for auto lenders: explore innovative strategies to meet consumer desires for affordable credit in a market defined by rising prices. Lenders must also adapt to evolving car buying behaviors, refining how and to whom they market their financing solutions. Opportunities for growth may specifically emerge within the electric vehicle sector as the auto industry adjusts to recent policy shifts.

Understanding the Current Auto Market Dynamics

Several key indicators highlight the challenging environment for car buyers and lenders alike:

• Record Prices: New vehicle prices reached an all-time high in January, averaging $49,191, a 1.9% increase from the previous year, according to Kelly Blue Book.
• Rising Monthly Payments: The average monthly payment for new vehicles climbed to $782 in Q4 2025 (up 3.5% year-over-year), while used vehicle payments rose to $538 (up 3.1%).
• Higher Financed Amounts: The average amount financed for new cars reached $44,495 (up 4.9%), and for used cars, it hit $27,278 (up 4.3%).
• Shrinking Affordable Options: The market for lower-priced new cars is contracting, with models like the Mitsubishi Mirage and Nissan Versa (both under $20,000) being discontinued.

According to Satyan Merchant, SVP and automotive and mortgage business leader at TransUnion, these price and payment increases are shifting new loan originations towards super prime borrowers and driving a greater demand for higher-end vehicles, thereby inflating average prices.

The Growing Appeal of Vehicle Leasing

TransUnion’s research points to an often-overlooked opportunity: vehicle leasing. While 87% of prospective buyers intend to purchase, 13% are considering leasing. For new vehicles, this trend is even stronger, with one in four new cars being leased.

Leasing is particularly gaining traction among younger demographics. Among consumers planning a vehicle transaction, 17% of Gen Z and Millennials show interest in leasing, significantly higher than the 7% of Baby Boomers. Merchant highlights that leasing typically offers lower monthly payments compared to financing a purchase, a crucial benefit given the current higher auto loan rates.

In 2025, EV leasing saw a substantial surge, with approximately half of EV transactions being leases, partly due to tax credit advantages and attractive manufacturer deals. While the direct tax credit for purchases has waned, EV manufacturers continue to offer competitive lease options, appealing to younger generations drawn to EVs’ lower operating costs, reduced emissions, and advanced technology.

An innovative approach to consider is the “Lease-Like Auto Loan,” such as that offered by Atlantic Federal Credit Union. This structure allows the consumer to own the car while enjoying payments designed to mimic a lease, offering flexibility at the loan’s term end.

Why Electric Vehicles Remain a Key Focus for Lenders

Despite the end of certain tax credits, interest in electric and hybrid vehicles continues to climb. TransUnion’s data shows that half of prospective buyers plan to purchase gas-powered vehicles, 33% prefer hybrids, and 16% are looking for EVs. Affordability is a significant driver, as EVs offer cheaper operation costs in many regions, although their upfront price can be higher, leading Gen Z to currently favor gas cars.

However, the EV pricing landscape is evolving. Following federal policy changes, some manufacturers have substantially reduced EV prices. Moreover, used EV prices have declined at a faster rate than their gasoline counterparts. Merchant suggests that these factors are creating a more affordable segment of the market, presenting new financing opportunities for lenders, particularly in used EVs.

A challenge for lenders, however, is the “data drought.” The relative newness of EVs and recent policy shifts mean reliable data on residual values for used EVs is scarce, creating volatility in this segment.

Expanding the Lender’s Reach: Beyond Local Boundaries

Local auto lenders aiming to sustain or grow their volume must rethink their market approach. TransUnion’s consumer research indicates that buyers are increasingly willing to travel for the right vehicle and deal:

• 30% of surveyed individuals would drive up to 100 miles.
• 10% are prepared to travel beyond 100 miles.

This means local dealerships can no longer solely rely on immediate geographic demand. Consequently, lenders must also broaden their net to capture financing business. Merchant emphasizes that growth in portfolio share can be achieved by moving beyond reliance on neighborhood auto dealers, signaling a transition from traditional lending models.

Optimizing Marketing for the Digital Car Shopper

The modern car buying journey largely begins online, rather than on dealership lots. This shift necessitates that lenders establish a visible presence much earlier in the consumer’s research phase. Shoppers are increasingly utilizing internet tools, and soon, AI-powered solutions, to find the best deals and vehicles.

Lenders must strategically place personalized offers on the most relevant digital channels. Given ongoing affordability concerns, a targeted approach using credit-based tools is essential. Marketing high-end luxury vehicles to a prospect whose credit only supports a $500 monthly payment is inefficient for both lender and dealer. Precision targeting ensures that relevant financing options reach appropriate buyers, maximizing conversion potential.

Source: thefinancialbrand.com