Buying a car is a big financial commitment, so it’s important to know all of your financing options. In 2025, the U.S. market for auto loans shows that lenders are changing, delinquencies are rising, and borrowers are changing their behavior. We’ll give a full and unbiased look at the most common types of auto loans, important market data, and useful tips based on the most recent industry reports. Tables, statistics, and clear metrics give first-time applicants the information they need to make smart, cost-effective choices.
Types of Auto Loans & Their Features
| Loan Type | Description & Pros/Cons |
|---|---|
| Secured Auto Loans | Vehicle serves as collateral. Typically the lowest APR rates, but failure to pay may result in repossession. |
| Unsecured Auto Loans | No collateral required. Higher interest rates may suit unique vehicles like classics. |
| Direct Financing | Loans from banks, credit unions, or online lenders let you get preapproved and give you a strong negotiating position. |
| Dealer (Indirect) Financing | Convenient, available on-site. Often higher APRs and less transparency. |
| Captive Financing | Manufacturer-backed (e.g., Ford Credit). Often promotes incentives (e.g., 0% APR), but pricing may be bundled. |
| Refinancing | Replace an existing loan with better terms based on updated rates or improved credit. |
| Balloon Loans / PCP | Pay less each month, but pay a lump sum at the end of the term. Costs less, but there is a risk of equity and timing. |
| Title Loans | Short-term loans with the car title as collateral, which are usually high-interest and high-risk, are usually for emergencies. |
Market Share & Lending Trends (Q1 2025)
- Overall Financing
- Captives own about 57% of new vehicle financing, which is down from about 62% in 2024.
- Banks increased to 24%, while credit unions rose to 11%
- Used-Vehicle Market
- Banks lead with 28.4%, with credit unions close behind at 28.2%.
- Independent finance companies account for 20.5%, with buy-here-pay-here dealers at 15.5%
Borrower Defaults & Delinquency Insights
- Auto loan delinquencies are rising:
- Overall, 5.0% of car loans are more than 90 days late, which is 13% more than in the first quarter of 2024.
- As of January 2025, subprime borrowers exhibit a 6.6% delinquency rate at 60+ days overdue, the highest on record.
- Overall 60+ day delinquency reached 1.38% in Q1 2025, exceeding the 2009 peak of 1.33%.
- Geographic and Demographic Variations
- 5.1% of people with auto loans are behind on their payments. The southern states have the highest rates of delinquency, with Mississippi at 9.8%.
- Young borrowers (Gen Z and Millennials) have higher delinquency rates compared to older generations.
Additional Statistics (Q1 2025)
- Loan Size & Terms
- Average new car loan: $41,720; average used: $26,144.
- Average APR:
- New: 6.73%, down from 6.85% in 2024;
- Used: 11.87%, down from 12.36%.
- Average terms: 68.6 months for new cars and 67.2 months for used cars.
- New: $745 per month; used: $521 per month.
- Borrowers with credit scores above 661 represent nearly 69% of auto financing; those 600 or lower only 16%.
Conclusion
In 2025, captive lenders will still be the most important source of new-car loans. However, banks and credit unions are slowly regaining ground, especially when it comes to used cars. Borrowers are facing longer loan terms, higher average balances, and more late payments, especially among younger people and people with bad credit. To make an informed choice, you should compare APRs, understand the terms, know the risks of specialized products (like balloon loans or title loans), and even think about refinancing to lower your costs. First-time car buyers can make better decisions by looking at their credit score, comparing lenders, and choosing financing that will help them stay financially healthy in the long run.
Frequently Asked Questions
What is secured vs. unsecured auto financing?
Secured loans use the car as collateral and usually have lower APRs. Unsecured loans don’t need collateral but have higher rates.
Is dealer financing a good option?
Dealer loans are easy to get, but the interest rates and terms may not be as good as those offered by banks or credit unions.
What are Captive lenders?
These are lenders that work with car companies and offer deals like low or no-interest financing. However, buyers should check the total cost against the rebates.
When should auto loans be refinanced?
If credit or market conditions improve, refinancing can lower rates or payments.
How risky are balloon (PCP) loans?
The monthly payments are low, but the final lump sum is risky because the car’s value might not be what you expect.
Updated by Albert Fang
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