The auto lending market is transforming as consumer behavior shifts, economic uncertainty persists, and technology reshapes the lending landscape. With auto loan demand expected to rise this year, credit unions have a unique opportunity to capture market share if they adapt. However, to remain competitive and effectively serve their members, credit unions must address additional challenges, such as rising negative equity and increased competition from captives.
Changing market dynamics
A record number of auto loans are now considered upside-down. This negative equity trend makes consumers hesitant to trade in their vehicles, highlighting the importance of flexible financing solutions.
To navigate this challenge, credit unions should explore flexible financing solutions, including extended loan terms, refinancing options, and educational resources to help members make informed decisions about their auto loans.
Captives’ subsidized interest rates have made it difficult for credit unions to compete in the new car market. As a result, many credit unions have shifted their focus to used car financing, where demand remains strong. By offering attractive rates on used car loans and a more personalized approach to service, credit unions can capture more loan volume while positioning themselves as a trusted alternative to dealership financing.
Evolving consumer behaviors
Another significant shift is the rising consumer interest in electric and hybrid vehicles. As sustainability and fuel efficiency become priorities for auto buyers, credit unions must be prepared to support this transition with specialized financing solutions.
The electric vehicle (EV) market is experiencing rapid growth. According to Autobody News, electric and hybrid vehicles are expected to comprise 25% of total U.S. auto sales in 2025, with battery EVs reaching a 10% market share. This marks a major increase from 2020, when EVs accounted for less than 2% of new car sales. Furthermore, Kelly Blue Book reported that 1.3 million new EVs were sold in 2024, reflecting an increase of more than 7% from 2023.
Credit unions have a prime opportunity to develop specialized financing products, including lower rates for energy-efficient vehicles and incentives for sustainability-conscious borrowers. However, loan-to-value (LTV) concerns and depreciation risks remain challenges for EV financing. Credit unions can mitigate these risks by structuring competitive loan terms and offering financial literacy tools to educate members on EV ownership costs.
Consumers are not only changing their vehicle preferences but also how they shop for vehicles. Many now begin their car-buying journeys online, influenced by partnerships like Amazon and Hyundai or direct purchases through Tesla and Carvana. Credit unions must be embedded in these digital ecosystems to remain competitive, ensuring their loan options are visible where members are shopping.
As digital purchasing experiences become the norm, credit unions must offer a seamless online loan application process to stay relevant. Seamless digital loan applications, pre-approvals, and integration with auto shopping platforms are no longer optional—they are essential for meeting modern consumer expectations and retaining market share.
The opportunity for credit unions
With digital financing becoming an expectation rather than a convenience, credit unions must rethink their strategies. This means adapting to changing consumer behaviors and leveraging technology, partnerships, and innovative lending solutions to drive growth.
Credit unions should prioritize the following strategies:
- Flexible loan solutions that address upside-down loans, including refinancing options and extended loan terms. According to J.D. Power, financially vulnerable borrowers have increased by 11% since 2021, while financially healthy borrowers have declined by 13%. This shift underscores the importance of tailored lending strategies that accommodate financial uncertainty.
- Strategic partnerships with dealerships, online marketplaces, and lending solutions providers to remain visible in the car-buying process.
- Sustainable financing programs that cater to EV buyers reinforce credit unions’ commitment to environmental responsibility.
- Competitive interest rates and superior member service remain the top priorities for borrowers when selecting a lender.
The role of technology in enhancing the member experience
Technology is reshaping auto lending by streamlining loan approvals and enhancing operational efficiency. Automation reduces friction in the lending process, giving members confidence in a fast, hassle-free experience. Additionally, AI-powered analytics enable credit unions to make more accurate lending decisions, reducing risk and improving member satisfaction.
Engaging with lending solution providers can help credit unions manage fluctuating loan portfolios while maintaining high service standards. By outsourcing operational tasks and leveraging digital tools, credit unions can focus on strengthening member relationships and ensuring long-term financial wellness.
By embracing digital transformation, credit unions can enhance efficiency, improve the member experience, and differentiate themselves through convenience and personalized service.
Opportunities for growth
As credit unions integrate these digital solutions, they gain a competitive edge by offering a seamless, member-first lending experience, which also impacts the dealer with faster decisioning and funding. This focus on convenience, efficiency, and personalization presents a significant opportunity for growth in 2025 and beyond.
Credit unions' member-first approach gives them a distinct advantage in auto lending. By aligning with consumer preferences and embracing technology, they can remain competitive and grow their loan portfolios in 2025. Strategic partnerships with solution providers can further solidify relevance in the digital age. For example, Origence’s subsidiary FI Connect helps credit unions tap into embedded finance opportunities, placing them directly within consumers’ purchasing journeys. By aligning with emerging trends, leveraging technology, and forming strategic partnerships, credit unions can solidify their role as the trusted financial partners of the future.
