On the Dash:
- Credit availability reached its highest level since April 2022, creating a more favorable financing environment for buyers.
- Approval rates rose sharply in May, while average contract rates and yield spreads declined.
- Record-long loan terms and elevated negative equity remain key risks despite improving credit conditions.
Auto financing conditions improved in May as the Dealertrack Credit Availability Index rose to 103.7, its highest level since April 2022. The All-Loans Index increased 1.5% from April and 7.3% year over year, driven primarily by stronger approval rates and narrower yield spreads.
According to the index, loan approval rates climbed to 72.4% in May, up from 70.6% in April and 71.9% a year ago. Similarly, the average contract rate fell 32 basis points to 10.87%, while the yield spread narrowed 53 basis points from 7.25% to 6.72%, providing the largest boost to overall credit availability.
Subprime lending eased for the second consecutive month, with its share declining to 16.7% from 17.4% in April. Despite the decline, subprime share remained well above the 14% recorded in May 2025.
Lenders extended loan terms to support affordability, with 30% of May financing consisting of loans of 72 months or longer, up from 29.7% in April and significantly higher than the 26.3% recorded a year ago. Additionally, negative equity improved modestly, falling to 57.3% from 58.5% in April, but remained elevated compared to 54.8% in May 2025, indicating many borrowers still owe more than their vehicles are worth.
Credit availability improved across most retail channels, with Independent Used and All Used leading gains. All New, Non-Captive New and Franchise Used also posted increases, while Used CPO remained largely flat. On a year-over-year basis, All New and Franchise Used showed the strongest improvement.
Among lender types, credit unions were the only group to post a monthly gain, rising 1.4%. Banks held essentially flat, while captives and finance companies posted slight declines.
May’s data points to a more favorable lending environment, but record-long loan terms and elevated negative equity remain key risks for both consumers and lenders.
