Credit unions and independent finance companies specializing in subprime loans are protecting their used-car financing turf –but at the same time taking increased risk – with higher-than-usual loan-to-value ratios, according to the latest Credit Industry Insights Report from credit bureau TransUnion, covering the second quarter 2025.
“Essentially, people are trading in existing vehicles that still have outstanding loans on them,” Charlie Wise, senior vice president, Research and Consulting at Transunion, tells WardsAuto. “Those loans are most likely underwater.”
Underwater, also called negative equity, means the trade-in's value isn’t enough to pay off the old loan. A loan-to-value ratio – abbreviated LTV – of much more than 100% can be a sign the borrower didn’t have enough cash to pay off the old loan, so the remainder of the old loan gets added to the amount borrowed on the new loan.
It’s Complicated
A word of explanation: loan-to-value is the amount borrowed, divided by the value of the newly acquired vehicle. It’s universally called a “ratio,” but it’s typically expressed as a percentage. An LTV of 120%, for instance, means the borrower borrowed 120% of the value of the newly acquired vehicle.
That’s an important number for the lender because if the loan goes bad and the lender has to repossess the vehicle and sell it, the lender may have to chalk up the difference between the amount financed and the cash value of the vehicle a loss.
According to the TransUnion report, the average LTV ratio on a used-vehicle loan at independent finance companies in Q2 2025 was 139%. That’s 24 percentage points higher than captive finance companies, at 115%. For credit unions, the average was 128% in the second quarter.
Out on a Limb
Those numbers are pretty similar over the last couple of years. Meanwhile, banks and captives have raised used LTV ratios, too, TransUnion says. But the spread in the average used LTV ratio between independents and credit unions on one hand vs. banks and captives on the other has steadily increased since Q2 2022.
Ditto the share of used-vehicle loans with an LTV ratio of 120% or higher, TransUnion says. In Q2 2022, the used-vehicle loan share with an LTV ratio of 120% or greater was 38% for all lender types averaged together. In Q2 2025, it’s 53%. The share for the 140%-plus category grows in the same time frame to 31%, from 17%, almost doubling.
Mixed Blessing
The willingness to lend at credit unions and independents is a mixed blessing for dealers. On the plus side, independents and credit unions can help move the metal when other lenders won’t take the risk.
The potential downside is two-fold. Many credit unions participate in indirect lending like banks and captives, where dealers have more opportunities to participate in a share of their customers’ interest rates and to earn more money from add-ons like extended-service contracts.
But credit unions typically engage in direct lending, where the customer may gain financing, but dealers don’t get any share of the interest rate. Credit unions also compete with dealerships for Finance & Insurance add-ons.
Another substantial risk is if the loan goes bad and the customer defaults. If that happens early in the loan, the lender may require the dealership to repay its share of the finance profits – the dreaded chargeback.
Still, it may be worth the risk. A high LTV ratio may be “the only way the dealer can move that vehicle,” Wise says.
