The Triple Squeeze: Navigating the Complex Landscape of Modern Auto Lending
The landscape of auto lending today is marked by unprecedented market volatility and converging pressures. These environmental factors have created what lenders refer to as a triple squeeze, characterized by rising acquisition costs, higher borrower risk, and shrinking margins. There has been an increase of more than 20% in the average size of personal auto loans since 2023, mainly due to pandemic-era lending practices and accelerating negative equity. This highlights the increasing importance of a proactive partnership between lenders and borrowers, with a significant focus on peace of mind and strategic risk mitigation.
The Impact of Rising Acquisition Costs on Consumer Affordability
Increased affordability pressures have begun to significantly influence borrower behaviour even before the occurrence of delinquency. Car insurance premiums have seen a substantial increase of approximately 55% since February 2020, based on data from the Bureau of Labor Statistics. The total cost of vehicle ownership has also been pushed to higher levels due to significant rises in parts, repairs, and maintenance costs. This situation makes it increasingly challenging to manage even routine vehicle expenses.
However, the primary factor driving this squeeze is the vehicle purchase price which has been affected by inflation, supply constraints, cross-border tariffs, and increased production costs. As borrowers are forced to take on larger balances, lenders experience a broader increase in loan delinquencies and financial strain. According to data from NCUA, delinquency balances nearly doubled between 2020 and 2024, rising from $1.9bn to $4.6bn before slightly easing in 2025. This indicates a deeper sense of financial vulnerability among consumers.
Increased Borrower Risk Leading to Behavioural Shifts
Reflecting the reality of this situation, borrowing patterns have shown changes, with Americans now owing a record $1.66 trillion in auto loan debt. This has made auto loan debt the second largest category of consumer debt after mortgages. When faced with tightened budgets, borrowers tend to postpone purchases, opt for smaller or older vehicles, or pursue refinancing to reduce payments. These adaptations indicate a long-term affordability reset rather than temporary discomfort.
The Effect of Shrinking Margins on Lender Portfolio Strategy
Increased loan amounts coupled with financially fragile borrowers mean that each loan approval carries a deeper exposure than a few years ago. Each large auto loan has become a long-term commitment that requires constant monitoring and ongoing borrower support. Many lenders are still operating with underwriting frameworks designed for a very different rate and affordability environment, leading to higher delinquency risk.
The Evolution of Portfolio Risk
Increased prices on vehicles and other goods have led to consumers carrying more debt. The Federal Reserve reports that delinquencies on auto loans and credit cards debt are up to levels not seen since the Great Financial Crisis. This puts pressure on lenders, many of whom have seen their funding costs rise by an estimated 235 to 287 basis points over the past few years. The simultaneous increase in the cost of risk from more delinquencies, repossessions, and deeper loss severity further exacerbates this situation.
Strategies for Mitigating Risk in a Triple Squeeze Environment
Confronted with these pressures, lenders need to explore strategies that can mitigate default risk and ensure peace of mind for borrowers. These strategies include proactive portfolio management, innovative lending solutions and embedded protection, leveraging data analytics for enhanced risk assessment, and empowering borrowers with flexible options. Such measures can improve borrower stability long before loan delinquency appears, and help institutions navigate the triple squeeze environment.
Redefining Resilience in Auto Lending
The triple squeeze is a structural shift that will shape auto lending for years to come. It is a test for even the strongest portfolios, characterized by rising loan sizes, increased borrower fragility, and margin compression. In this challenging environment, it is crucial for lenders to prioritize solutions that empower resiliency and stability for both lenders and borrowers. Those who act now will not only navigate the triple squeeze successfully but will also help define what sustainable, borrower centered lending looks like in the decade ahead.
Article by Corrin Maier, Vice President of Lending at TruStage
