The Automobile Loan Market: Policy Issues For US Congress – Analysis

By Karl E. Schneider

An automobile loan allows a consumer to finance the purchase of a new or used car. Auto loans are usually structured as closed-end installment loans in which a consumer pays an amount of money each month for a predetermined time period, frequently three to seven years. Lenders often require consumers to make down payments to obtain the loans. An auto loan is secured by the automobile, so if a consumer cannot repay the loan, the lender can repossess the car to recoup the loan's cost.

Auto loans are the second-largest consumer credit market, behind mortgages. At the end of 2025, there were 108 million open auto loans, and outstanding auto loan debt totaled $1.67 trillion. 

Overview of the Auto Lending Market

Demand for auto loans is related to car prices. As the prices of cars increase, consumers may take out larger loans or take out loans instead of paying in full. A spike in car prices from 2020 to 2022 led to an associated surge in the number of total auto loans and their average size. Car price increases were driven by a variety of factors, primarily macroeconomic inflation impacting the prices of underlying supplies and disruptions across the automobile supply chain but also integration of new vehicle technologies, safety and emission regulation compliance, production planning changes from manufacturers, and markup changes at dealerships. The average price of new cars peaked in 2023 and remains at roughly the same level today. 

Rising interest rates have also pushed the total cost of financing upwards. The financing rate for new automobiles on 48-month loans from commercial banks increased from 4.6% in November 2021 to 8.5% in November 2023 with a gradual decline to 7.5% in November 2025. Bank rates are generally lower than those offered by dealerships or by nonbank lenders. In total, the average monthly payment for car loans increased from $470 in January 2020 to $600 in January 2023. 

In 2025, the average loan term for new cars was 69 months. Since 2010, there has been a trend toward longer automobile loan terms, which peaked in 2020 and have gradually declined since. This trend may be due in part to rising vehicle costs, with consumers extending loan terms to manage payments. This could also be driven by consumers keeping their cars longer. A longer loan term in general decreases a loan's monthly cost but increases its total cost, as consumers pay more interest. Some evidence indicates that longer auto loan terms (longer than five years) have higher delinquency rates than shorter loans do, even after controlling for creditworthiness and macroeconomic characteristics. These longer loan maturities may increase the share of loans with negative equity as cars age and decline in value. 

The percentage of auto loan balances that are 90 or more days delinquent, inclusive of severely derogatory balances (e.g., charge-offs, collections), has increased from a recent trough of 3.7% in the fourth quarter of 2022 to 5.0% in the third quarter of 2025. Current delinquency rates are consistent with those immediately before the pandemic, as delinquency was 4.9% in the fourth quarter of 2019. These increases were even larger in the 30-day auto loan delinquency rates (excluding severely derogatory balances). The rising delinquency rate since 2022 has been linked to subprime and near-prime borrowers with loans originated from 2021 to 2023. Research from the Federal Reserve finds that such borrowers have been more negatively affected by high car prices than by high interest rates. Elevated post-pandemic car prices may therefore continue to play a role in current delinquencies. 

Auto Loan Origination Market

Auto loans are originated in two ways: directly with lenders or indirectly working through auto dealers. The vast majority (83% of loans, according to one paper) are obtained indirectly. These indirect auto loans are forwarded from auto dealers to nonbank finance companies, banks, and credit unions. In the indirect lending process, the dealer forwards information about the prospective borrower to one or more lenders and solicits potential financing offers. Often, the dealer is compensated for originating this loan through a discretionary markup, which is the difference between the lender's interest rate and the rate that a consumer is charged. Such markupscan sometimes be substantial. 

Roughly half of auto loans are originated by depository institutions, and they tend to serve prime borrowers with lower delinquency rates. Captive finance companies, which are subsidiaries of car manufacturers, finance roughly a fifth of auto loans. Captive and traditional depository loans usually have the lowest interest rates, typically due to the higher creditworthiness of their borrowers, subsidies by the manufacturers to the captives, or a relatively lower level of discretionary markup. Non-captive finance companies account for less than 10% of auto loans and have much higher average interest rates as they are for used cars and primarily subprime borrowers.

Some auto dealerships directly extend credit themselves (roughly 10% of auto loans), calling this practice "Buy Here, Pay Here" and commonly marketing to consumers with subprime or no credit histories. These dealers do not work on behalf of other lenders but keep the loans on their books. These dealers tend to offer higher interest rates than do depository institutions or captive financial institutions. 

Auto Loan Market Regulation

In response to the financial crisis, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank, P.L. 111-203) established the Consumer Financial Protection Bureau (CFPB) to implement and enforce federal consumer financial law for certain financial products and institutions, including some of the firms in the auto loan market. The CFPB oversees consumer protection compliance, which includes a number of laws in CFPB's jurisdiction, some of which are described below. The CFPB may engage in rulemaking, supervision, or enforcement activities related to auto lending. A bank may also be subject to safety and soundness regulation from other financial regulators, depending on its charter. 

The CFPB oversees consumer protection for auto lending for banks over $10 billion in assets and certain larger nonbanks. In August 2025, the CFPB issued an advance notice of proposed rulemaking that would potentially change the annual originations threshold for "larger nonbanks" from 10,000 to 1,050,000 annual originations. This CFPB oversight does not extend to auto dealers' activities. Dodd-Frank states that the CFPB "may not exercise any [authority] over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both." 

The CFPB enforces a number of laws, some of which have been directly relevant to its recent work in auto lending or related policymaking. The Equal Credit Opportunity Act (ECOA, 15 U.S.C. §§1691-1691f), generally prohibits discrimination in credit transactions based upon certain protected classes, including an applicant's sex, race, color, national origin, religion, marital status, age, and income from public assistance. The CFPB also enforces the Fair Credit Reporting Act (FCRA, 15 U.S.C. §§1681 et seq.), which establishes consumers' rights in credit reports and scores, required disclosures, and permissible uses of credit reports.

Policy Issues

In general, auto lending policy debates concern the appropriate balance among consumer protection, convenient credit access for consumers, and costs to industry.

Cost of Automobiles and Automobile Loans

Certain government policies may have increased or decreased automobile affordability and, in turn, impacted the cost of automobile loans. Higher automobile tariffs may be an impediment to improving overall car affordability, and, as such, costs may be passed on to the consumer. For more on these provisions and congressional action on tariffs, see CRS Insight IN12545, Section 232 Automotive Tariffs: Issues for Congress, by Kyla H. Kitamura. On the other hand, P.L. 119-21 (commonly referred to as the One Big Beautiful Bill Act) reduced penalties for violation of Corporate Average Fuel Economy (CAFE) standards to $0, in effect eliminating enforcement of the standards, while a more recent proposed rule would slow the growth in CAFE fuel standards. This may result in vehicle purchase prices declining in the coming years. For information on CAFE standards, see CRS In Focus IF12433, Automobiles, Air Pollution, and Climate Change. 

As previously noted, higher interest rates have increased the cost of auto financing. Section 70203 of P.L. 119-21 provided an auto loan interest tax deduction that could defray some of the costs associated with certain vehicle purchases. Specifically, it provides an above-the-line deduction of up to $10,000 of interest paid for tax years 2025-2028. This deduction applies only to vehicles or motorcycles with final assembly in the United States, and it phases out for higher-income taxpayers. The Joint Committee on Taxation estimates that this provision will reduce revenues by $30.6 billion over FY2025-FY2029. For more on this provision, see Table 2 of CRS Report R48611, Tax Provisions in P.L. 119-21, the FY2025 Reconciliation Law, coordinated by Anthony A. Cilluffo.

Consumer Protection Issues

Consumer Awareness and Ability to Negotiate Auto Loan Terms. Unlike car prices, consumers may not be aware of and do not always negotiate the terms of auto loans when obtaining financing and do not always shop for multiple rates. Consumers' lack of awareness—combined with auto dealers' discretion on markups—may make consumers vulnerable to bad actors and make the auto loan market uncompetitive. Some observers believe that financial education programs could raise consumers' awareness of their right to negotiate auto loan terms. 

Fair Lending. In 2013, in response to concerns that auto dealer markups could result in pricing disparities based on protected classes, the CFPB issued a bulletin providing guidance to indirect auto lenders on how to comply with ECOA. This guidance stated that indirect auto lenders should impose controls on or revise and monitor dealer markups to ensure they do not result in disparate impact based on race or other protected classes. 

From 2013 to 2016, the CFPB, in coordination with the Department of Justice, issued consent orders to settle enforcement actions against a number of lenders for ECOA violations in indirect auto lending markets. The CFPB's indirect auto lender guidance and the resulting enforcement actions were viewed as controversial among indirect auto lenders and auto dealers and were the subject of congressional oversight. In 2018, Congress rescinded the CFPB's indirect auto lender guidance pursuant to the Congressional Review Act (P.L. 115-172).

In November 2025, the CFPB proposed a rule that would broadly "provide that ECOA does not authorize disparate impact claims" and affect other interpretations of the law. This reflects a broader policy position of the current executive branch as outlined in an executive order entitled "Restoring Equality of Opportunity and Meritocracy."

• About the author: Karl E. Schneider, Analyst in Financial Economics
• Source: This article was published by the Congressional Research Service (CRS).