For the last two consecutive quarters, there’s been a big increase in auto loan and lease originations in the risk tier just above subprime, compared to a year ago.
Specifically, this surge has been happening in the credit score range from 620 to 659, according the latest data from the New York Federal Reserve. And so far it’s had only a minor effect on the market as a whole.
“The credit quality of newly originated auto loans worsened slightly,” from a high level a year ago, summed the New York Fed Household Debt and Credit Report for the second quarter of 2026, which was published Aug. 11.
The median credit score at origination for all risk tiers combined was 716 in the second quarter of 2026, down from 724 in the same quarter a year ago, the report said. The statistics are for auto loans and leases, and for new and used vehicles, all combined.
The New York Fed considers subprime a single category, defined as credit scores below 620, and it’s common in the industry to define the cutoff between subprime and prime at 620.
Analysts are keeping an eye on the recent increase in the barely-prime risk tier. At the same time, it’s fair to point out that two quarters don’t necessarily make a trend. It’s also true that auto loans and leases in the “super-prime” risk tier, with 760-plus credit scores, still account for the biggest share of auto loans and leases.
So, what’s going on? According to interviews, likely scenarios might include:
- It’s a more competitive market. Lower margins mean OEMs and auto lenders are recovering their appetite for bigger sales volume — even if bigger volume requires taking on a moderate increase in risk.
- It’s also possible the 620-to-659 population may have increased, reflecting the “K-shaped economy,” divided between super-prime haves, and relative have-nots, including some borrowers who dropped out of higher tiers.
- Relatively new captive finance companies owned by big dealer groups, and finance arms for used-car outlets like CarMax, could be contributing to the increase in low-prime loans. Auto lender Ally Financial has reported it is taking on more loans just above and below the cutoff for subprime.
The dollar value of loans in this category has surged in recent months. According to the New York Fed report, the value of auto originations in that 620-to-659 range jumped 55.4%, versus the second quarter of 2025. The same tier increased 53.6% in the first quarter of 2026, versus a year ago.
Granted, the increases compare with low year-ago numbers, and that exaggerates the percent increase. In Q2 2026, the 620-to-659 range accounted for 13% of all originations, up from 9.4% in the same period last year. In Q1 2026, its share was 11.8%, from 8.5% a year ago.
Still, it’s a trend worth keeping an eye on, according to analyst and consultant John Murphy, founder and managing partner of Murphy Automotive Partners.
“The high-end consumer, the high-end mix, has been seen as very resilient — and arguably, at or near-peak. Everything is a potential issue and a potential opportunity,” explained Murphy, in an Aug. 13 interview with WardsAuto about the New York Fed results.
“So, without taking on extreme risk, maybe expanding credit categories is a way to support volume. There might be a safe way to do so,” without increasing subprime loans per se, he said.
In Q2, the 760-plus credit score range accounted for 40.8% of all originations. That was the biggest share of the five risk tiers the New York Fed tracks, and up from 40% a year ago. For context, super-prime loans and leases accounted for 31.6% of all originations in Q2, 2019, before the pandemic.
In a phone interview on Aug. 17, Brian Gordon, president of Dave Cantin Group, a leading automotive retail M&A advisory firm, told WardsAuto that in recent years, the mix of auto lenders has changed with the growth of captive finance companies owned by retail groups. And these mostly OEM-owned captive finance lenders are more willing than banks to make somewhat higher-risk loans.
“There’s an increase in the overall percent of business for the retailer captive finance companies, like at Lithia, AutoNation, CarMax,” Gordon said. As a group, retailer-owned captives have “doubled their business” in the last decade, he said.
“Their standards are different than banks, because they are more integrated into the auto business, willing to take on more,” Gordon said.
Satyan Merchant, senior vice president, automotive and mortgage business at TransUnion, told WardsAuto that the current, relatively high level of auto-loan delinquencies naturally follows from a greater share of loans being made to consumers in somewhat lower credit tiers. And not necessarily a sign that consumers with existing loans are increasingly falling behind on payments.
“Some of these numbers on the surface, taken out of context, could look surprising, or alarming,” Merchant said in an Aug. 6 phone interview.
He referred to a TransUnion second-quarter Credit Industry Insights Report, published Aug. 6, which said serious delinquencies — defined at 60-plus days overdue — accounted for 1.51% of auto loans and leases in Q2, up only very slightly from 1.49% a year ago.
“Origination growth over the last several quarters has been in the subprime and near-prime space,” which would naturally cause delinquency levels to tick upward, Merchant said.
