Auto Finance: What’s Hot, What’s Not in 2025Auto Finance: What’s Hot, What’s Not in 2025

Here’s what’s hot and what’s not in auto finance in 2025, based on interviews with various sources and research from Experian Automotive.

Hot:

Affordability–new- and used-car prices are still high, even though new-car incentives are up.

Older used cars–share is up for used vehicles 9-plus years old, Experian says. A monthly payment in the $400 range is key.

Passenger cars – for brands that have them – sedans are often the cheapest body style.

Leasing – produces a lower monthly payment, so lease share is up, especially for EVs.

Not:

Certified pre-owned – that is, CPO units are plenty desirable, but off-lease, 3-year-old used cars, the commonest source of CPO stock, are still scarce, reflecting the drop in production and in leasing three years ago.

Delinquencies – as delinquencies rise, some auto lenders pass up subprime shares.

Age Before Beauty

Customers who can afford to pay more are gravitating to older used cars, too, Melinda Zabritski, head of automotive finance for Experian Automotive, tells WardsAuto. “Even prime consumers are shifting into that 9-plus-year group,” she says.

A special report Experian Automotive prepared for the January National Automobile Dealers Assn. Show notes that borrowers with credit scores of 660 and higher account for 53.7% of auto loans for vehicles 9-plus years old for full-year 2024, up from 42.5% for 2023.

The average estimated monthly payment for the 9-plus category in 2024 was $431, vs. $498 for 4-to-8 years old, or $608 for current model year to 3 years old, Experian says.

$400 Tipping Point

A used-car monthly payment of $400 is an important psychological barrier for borrowers on a budget, Jeff Dyke, president of Sonic Automotive, Charlotte, NC, tells WardsAuto.

But with interest rates and used-vehicle prices both so high, he says it’s challenging to achieve a $400 monthly payment. That’s especially true for a customer who doesn’t have a hefty trade-in or a lot of cash for a down payment.

High used-vehicle prices forced Sonic to freeze the expansion of its separate used-car franchise, EchoPark, in 2023, suspend operations at some locations and resort to selling older used vehicles.

Selling 3-year-old used vehicles and undercutting the market is central to EchoPark’s business model, but that’s been impossible with the shortage of nearly-new used cars and high used-car values.

Dyke says used-vehicle prices are moving in the right direction. He expects average used-vehicle prices to reach the mid-$22,000 range in 2025, down from a peak in the upper-$30,000 range

a couple of years ago. 

Remember Sedans and Other Passenger Cars?

Meanwhile, passenger cars, as opposed to light trucks – that is, crossovers, SUVs and pickups – are enjoying somewhat greater popularity.

For those brands that offer them, small, front-drive sedans are often the most affordable vehicles in the lineup, vs. larger, heavier, all-wheel-drive light trucks, experts say. The Detroit Three domestic brands have pretty much-abandoned passenger cars, so their current popularity is benefiting import brands such as Honda, Toyota, Kia, Hyundai and Subaru.

“We welcome any OEM who wants to get out of the passenger-car business,” Dave Christ, group vice president and general manager of Toyota Div. tells WardsAuto.

“The Camry has been a home run in the market. The Prius is red hot and sold out,” he says. Sales of the Toyota Prius hybrid and plug-in hybrid were up 17.5% for 2024.

Leasing Comeback

On the used-car side, passenger cars made up almost 37% of retail used-vehicle registrations for the prior 12 months through October 2024, says Kirsten Von Busch, director of automotive product marketing for Experian Automotive.

For full-year 2024, passenger-car sales were only about 19% of new-vehicle sales, analysts say.

On the new-car side, leasing is making a comeback, in part because while it lasts, leasing is the only way for many electric vehicles to qualify for a $7,500 tax incentive. However, the Trump administration suggests that government incentives for EVs may be dropped.

For the third quarter of 2024, the latest figures available, leases accounted for 44% of EV financing, Experian Automotive says. For the market as a whole, leasing accounted for 24% of new-vehicle financing in the third quarter of 2024, up from 20% a year earlier.

Late Payments Accelerate

With high prices and high interest rates has come a gradual increase in delinquencies. Experian Automotive estimates auto loans delinquent by 60-plus days made up 0.99% of auto loan balances for the fourth quarter of 2024. That’s about even with the fourth quarter of 2018, but it’s up from 0.72% a year earlier, or the same for the fourth quarter of 2020.

Some auto lenders say they are passing up riskier loans. Ally Financial says its highest-ranking, least-risky credit tier, with an average credit score of around 750, accounted for 44% of its originations in the fourth quarter, up from 42% a year ago or just 26% in the fourth quarter of 2022.

The high share of low-risk loans is “positioning us for strong risk-adjusted returns in the years ahead,” says Ally CEO Michael Rhodes.