Credit union auto lending faces another tough year.
New research from TruStage points to slowing vehicle sales and shrinking loan balances, suggesting continued pressure on one of credit unions’ most important lending categories.
Credit unions are likely to face another challenging year in auto lending as elevated vehicle prices, rising negative equity and cautious consumers continue to suppress demand for new loans, according to the latest Credit Union Trends Report released this week by TruStage.
The report, authored by Steven Rick, chief economist at TruStage, paints a mixed picture for the market. While new vehicle sales showed signs of life in March, credit union new auto loan balances have remained under pressure for well over a year, reflecting broader economic headwinds and changing consumer behavior.
Credit union new auto loan balances fell 5% in December on a seasonally adjusted annualized basis and have been in negative territory since August 2023, the report said. Rick attributed the prolonged decline to several factors, including the rapid amortization of loans originated during the lending boom of 2021 through 2023, elevated interest rates, weak consumer confidence, recession concerns and tighter lending standards that have reduced the availability of credit.
New vehicle sales offered some encouragement in March, climbing 3.7% from February to a seasonally adjusted annual rate of 16.3 million vehicles. Even so, sales remained 8.7% below the pace recorded a year earlier.
According to TruStage, that year-over-year comparison was influenced in part by unusually strong buying activity in March 2025, when consumers accelerated purchases ahead of anticipated tariffs.
Several factors contributed to the monthly improvement, Rick wrote. Average wages increased 3.8%, dealership inventories expanded, making vehicles easier to obtain, and loan interest rates remained relatively stable during the period.
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Still, the rebound has not been enough to restore the market to what economists consider a normal level of demand.
Vehicle sales remain below the estimated long-term equilibrium of 17 million units annually, with persistently high transaction prices continuing to price many households out of the market. Consumers trading in existing vehicles are also finding themselves with less purchasing power as used-car values decline.
One of the report’s most striking findings concerns negative equity. TruStage estimates that roughly 30% of borrowers currently owe more on their vehicle loans than their cars are worth, with the average negative equity balance standing at approximately $7,200.
That dynamic creates a ripple effect for future purchases. Borrowers who remain underwater often roll unpaid balances from existing loans into financing for replacement vehicles, increasing debt loads and limiting affordability.
As a result, many buyers are financing roughly $12,000 more than a typical new-car purchaser after incorporating balances carried over from previous loans, according to the report.
For credit unions, those conditions present a difficult balancing act. Auto lending has long been a cornerstone product for many institutions, but softer demand and tighter underwriting standards have slowed portfolio growth while concerns about borrower affordability remain elevated.
The report suggests those pressures are unlikely to ease in the near term.
TruStage forecasts that new vehicle sales will decline from 16.1 million units in 2025 to 15.8 million in 2026, a projected decrease of 1.9%.
Rick cited several reasons for the expected slowdown, including weak job growth, higher auto loan rates, rising vehicle prices and increasing gasoline costs that could strain household budgets. The report also pointed to recession risks associated with a prolonged conflict involving Iran and noted that many consumers continue to favor used vehicles over more expensive new models.
Taken together, those forces indicate that the auto market may remain constrained despite modest improvements in income growth and inventory availability. For credit unions seeking to expand lending portfolios, the combination of affordability challenges and cautious consumer sentiment could make sustained growth in new auto loans difficult to achieve over the coming year.
The report underscores a broader reality facing the industry: while economic conditions have improved in some areas, many households continue to grapple with financing challenges that are reshaping how — and whether — they purchase new vehicles.
“We expect inflation to run above the Federal Reserve’s 2% target as firms pass through any additional tariff costs and the slow growth in the labor force will keep upward pressure on wage growth.”
– Steven Rick
Chief Economist
TruStage
Ken McCarthy is manager of marketing communications at Tyfone, where he monitors the credit union industry and contributes to conversations shaping its future. He previously covered credit unions and community banking for American Banker and S&P Global Market Intelligence. He holds a journalism degree from Point Park University and has more than 15 years of experience covering financial services. He is also the author of three literary fiction novels.
