What the U.S. auto loan crisis means for credit and collections

The U.S. auto finance industry stands at a crossroads. After several years of economic uncertainty, auto loan delinquencies and repossessions have surged to heights not seen since the Great Recession. Even the most creditworthy borrowers are facing the effects of this growing crisis.

For lenders, the challenges are immense, with profound implications for financial performance, customer trust, and operational resilience. This article takes a closer look at what the auto finance industry is facing and the leading strategies for getting back on track.

Auto loan defaults are climbing to record highs

Auto loan portfolios across the U.S. are under serious stress. The overall 60+ day delinquency rate on auto loans climbed to 1.38% in the first quarter of 2025, matching, if not surpassing, the most challenging years of the late 2000s. Vehicle repossessions are on a relentless march upward, too: over 1.7 million cars and trucks were repossessed in 2024, with projections pointing even higher for 2025.

While subprime borrowers remain the most vulnerable—with over 6.6% at least two months behind on payments as of January 2025—delinquency and default rates are also rising in prime segments. Analysts note that no credit tier is fully immune.

Fueling these losses are several converging forces, including historically high vehicle prices, skyrocketing loan rates, escalating insurance and upkeep costs, and a legacy of pandemic-era lending, marked by longer terms and enhanced risk appetite.

Auto lenders are struggling to keep pace with escalating losses

This rising wave of economic distress is affecting auto lenders nationwide. Existing teams and systems are stretched to their limits, struggling to manage the growing volume of at-risk accounts.

These challenges are worsened by a continued dependence on manual or fragmented collections processes, which lead to delays, inconsistent outreach, and lost recovery opportunities.

As caseloads increase, collections teams often lack the time, resources, and advanced tools needed to detect and address early warning signs of financial trouble. This is particularly true when risk emerges in portfolios previously considered “safe.”

The consequences are stark: direct financial losses from defaults are escalating, while legacy methods fall short of accurately predicting and managing portfolio risk.

Ultimately, borrowers bear the greatest burden. In an intensely competitive lending environment, negative or impersonal experiences—especially during moments of hardship—can damage customer trust and reputation, undermining long-term growth prospects.

Proven strategies for getting customers back on track

Given the circumstances, it might seem as if auto lenders are faced with an insurmountable task. But there are some strategies that are proven to make a real, measurable impact on managing the rising tide of delinquencies.

Proactive risk detection and segmentation

The first tactic is taking a proactive approach to pre-delinquency. Advanced analytics and real-time data are the baseline to assessing borrower risk on an individualized basis. Through machine learning, AI-powered systems can identify vulnerable accounts long before traditional metrics signal distress.

Auto lenders can proactively segment borrowers by risk profiles, payment behavior, and even predicted self-remediation likelihood. By taking a nuanced approach, providers can deliver tailored strategies for engagement, loss mitigation, and even loan modifications—maximizing recoveries while minimizing unnecessary escalations.

Automation and responsiveness

As delinquency volumes grow, automation is essential. Automated debt collection solutions deploy configurable workflows to orchestrate every stage of the collections process, from initial outreach to hardship assessment, repayment plan scheduling, and escalation to repossession.

Rather than chasing down overdue accounts one-by-one, auto lenders respond rapidly—in bulk and in context—so the right intervention reaches the right borrower at the right time. Aside from reducing the workload, an automated approach also minimizes the risk of human error during the credit and collections process.

Digital-first, hyperpersonalized outreach

Today’s borrowers expect to interact across the channels they prefer, whether that’s SMS, email, phone calls, or self-service portals. Data-driven solutions are making it possible to deliver the highly personalized, empathetic outreach customers expect at scale.

Customer behaviors and preferences inform outreach strategies, so effort is placed in the direction where it’s most likely to garner a response. Not only does this approach improve recovery rates, but it also preserves customer goodwill, even during contentious processes like repossession.

All communications and workflows can be coordinated centrally to ensure consistency and regulatory adherence.

Financial health assistance

Customers in financial distress are far more likely to prioritize essential expenses like food, rent, and utilities over auto loan repayments. That’s why more and more lenders are incorporating financial assistance for these categories into their customer outreach.

Tools like SpringFour demonstrate that when customers can reduce their costs for essentials, they free up vital wallet space to get current on other obligations, resulting in a 2 to 10 times increase in repayment success.

Integrating these resources directly within a collections solution makes it seamless for collections teams to connect consumers with vetted, verified assistance programs in real-time. It’s a strategy that’s shown to boost payment rates and enhance borrower goodwill, turning collections from a purely transactional interaction into a supportive, customer-centric engagement.

Real, measurable results with AI-driven auto finance solutions

In the face of rising auto loan delinquencies and heightened financial pressures, the industry’s path forward requires innovation, precision, and speed. This is where C&R Software excels: delivering optimized decision processes fueled by cutting-edge algorithms that elevate every phase of the credit decisioning and collections workflow.

By harnessing advanced technology, C&R Software empowers lenders to streamline their operations without sacrificing accuracy. Each decision, from risk assessment to repayment strategies, is executed with maximum process efficiency and speed, so borrowers receive rapid, highly personalized engagement. With a laser focus on accuracy assurance and workflow streamlining, every account is managed with the optimal blend of empathy and operational rigor.

Through this commitment to rapid processing and continual advancements in credit decisioning technology, C&R Software helps auto financiers adapt swiftly to today’s challenges, restoring financial health for lenders and borrowers alike.