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The auto lending industry is facing a new set of challenges as consumers trouble with high costs. Car prices, monthly payments and insurance costs all rose in 2025, according to Moody's Analytics.
These increases are creating a ripple effect that could lead to a surge in loan delinquencies as more borrowers struggle to keep up with their payments.
For auto lenders, this trend signals a potential rise in risk, making effective borrower engagement strategies more critical than ever.
Understanding the Surge in Auto Loan Payments
Several factors contribute to the dramatic rise in monthly auto loan payments. One of the primary drivers has been the shift in automakers' strategies during and after the pandemic.
As Karl Brauer, Executive Analyst at iSeeCars.com, explained in a recent interview, automakers discovered that they could maintain profitability by selling fewer vehicles at higher prices.
This was largely due to a supply shortage that allowed manufacturers to focus on high-margin models, often eliminating lower-cost options like base models or front-wheel drive versions.
As a result, even as the supply chain recovers and incentives return, prices remain significantly above pre-pandemic levels. The average monthly payment for a new vehicle has reached approximately $750 as of May 2023, up from $530 in May 2019.
While automakers are slowly increasing production and offering more options on dealer lots, these high payments are unlikely to return to pre-pandemic levels anytime soon.
If Canadian tariffs go into effect, car prices could rise even more.
Implications for Lenders: The Growing Need for Risk Mitigation
While car sales may be impacted, people still need transportation. The real problems will come later when buyers find it difficult to keep up with payments.
For auto lenders, the implications of these rising payments are profound. Higher monthly payments increase the likelihood that borrowers may struggle to meet their financial obligations, leading to higher delinquency rates.
As more borrowers find themselves unable to keep up with their payments, lenders must be prepared to step in with effective risk mitigation strategies.
This is where services like those offered by NCCI become invaluable. By facilitating communication between lenders and delinquent borrowers, NCCI helps lenders navigate the complex landscape of collections and loss mitigation.
The goal is to reconnect borrowers with their lenders before their situation deteriorates further, providing an opportunity for resolution that benefits both parties.
The road ahead may be challenging, but with the right tools and strategies, lenders can effectively manage the risks associated with rising auto loan payments, ensuring they remain resilient in the face of an evolving market landscape.
If you are considering implementing a risk mitigation strategy for your auto lending business, we would love to share the best practices we have developed. Reach out to us anytime.
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