Auto Lending at a Crossroads: How Credit Unions Can Win in a Challenging Market

As we move into 2026 auto lenders continue to face a challenging environment.  Credit unions are navigating a convergence of rising auto loan delinquencies, ongoing vehicle affordability challenges, and aggressive competition from banks, captives, and fintechs that often prioritize volume over sound risk management. While some macroeconomic easing may emerge, core risks—especially negative equity—are likely to persist.

For credit union leaders, the mandate is clear: uphold fiduciary responsibility while continuing to serve members effectively. The good news is that uncertainty rewards institutions that are strategic and adaptable. By leveraging credit union–specific data intelligence, designing customized loan programs, and building stronger dealer partnerships, many credit unions are turning today’s headwinds into long-term growth opportunities.

Today’s Auto Lending Market: Key Pressure Points

Success in the current environment requires agility. Four major challenges are shaping portfolio performance and growth:

• Rising Delinquencies: Delinquency rates remain elevated, particularly among subprime and near-prime borrowers, increasing collection costs and CECL reserve pressure.

• Ongoing Affordability Constraints: High vehicle prices combined with elevated interest rates continue to stretch household budgets, pushing borrowers toward longer loan terms.

• Negative Equity Exposure: While extended terms reduce monthly payments, they raise lifetime risk and increase the likelihood of negative equity, limiting refinancing and trade-in options for members.

• Intensifying Competition: Large banks, captives, and generic platforms often chase volume without regard for risk-adjusted returns, putting pressure on credit unions to compete for both members and quality loans.

Credit unions that respond with member-first technology and specialized partnerships are best positioned to succeed.

The Limits of One-Size-Fits-All Lending Platforms

Many indirect lending platforms are designed for scale, not specialization. Built to serve the largest institutions, they emphasize speed and volume at the expense of flexibility, strategic alignment, and localized risk management. For credit unions, this approach creates significant constraints.

Generic platforms often make it difficult to:

• Align underwriting with your unique risk appetite and local market conditions

• Adjust programs quickly as economic conditions evolve

• Offer differentiated, member-focused products such as first-time buyer or niche financing programs

KLA takes a different approach. Our indirect auto lending solutions are purpose-built exclusively for credit unions. From program design and dealer network development to customized underwriting support, every element is tailored to your risk tolerance, operational goals, and member-first mission.

Strategic Priorities for Growth and Portfolio Protection

1. Use AI and Advanced Data to Anticipate Risk Traditional credit scores are backward-looking and no longer sufficient on their own. Today’s environment demands predictive insight. Advanced analytics and AI-driven underwriting help lenders detect early warning signs, strengthen front-end decisioning, and protect portfolio health before problems escalate.

KLA’s analytics turn complex market and member data into actionable intelligence, enabling teams to:

• Identify high-risk collateral before funding

• Spot emerging delinquency trends and intervene early

• Respond faster to market shifts than competitors relying on lagging indicators

  
  

2. Build Flexible, Member-Centered Loan Programs Rigid loan structures create friction and missed opportunities. To remain competitive, credit unions must be able to meet diverse member needs through tiered pricing, specialty vehicle financing, and customized term options—without compromising risk controls.

KLA gives credit unions the operational flexibility to launch or adjust programs quickly and compliantly, allowing them to capture underserved segments that generic platforms often overlook.

3. Develop Dealer Partnerships, Not Just Transactions Dealers remain the primary source of indirect auto loan volume. When dealers understand your lending philosophy, trust your technology, and see consistency in decisioning, they become true partners—sending applications that align with your risk criteria.

With decades of experience, KLA builds and supports collaborative dealer networks that prioritize quality over volume, helping protect your balance sheet while reinforcing your member-first values.

Why Specialization Matters

Credit unions aren’t just competing for loans—they’re competing for trust. KLA’s specialized indirect auto lending solutions are designed with that distinction in mind, helping credit unions:

• Improve Risk-Adjusted Returns: Grow responsibly using advanced analytics and disciplined underwriting

• Stay Agile: Adapt quickly to economic and competitive changes

• Protect the Member Experience: Deliver a seamless, competitive lending process while staying true to credit union values

  
  

Key Takeaways for Credit Union Leaders

• Volatility Is the New Normal: Affordability and delinquency challenges aren’t temporary. The answer isn’t retreat—it’s smarter lending.

• Customization Is Critical: Generic platforms introduce unnecessary risk. Credit union–specific solutions provide the flexibility and focus needed in uncertain markets.

• The Right Partner Makes the Difference: Success depends on partners who invest in your dealer relationships and equip you with predictive insights to safeguard portfolio health.

  
  

KLA helps credit unions navigate today’s complexities, protect members’ financial well-being, and drive sustainable growth through tailored indirect lending solutions.  Connect with Bob Brant on LinkedIn or email him at rbrant@kla.us.com.