VIEWPOINT: The new auto finance outlook

With the 2026 auto finance market defined less by any single disruption than by the continued reshaping of the industry in response to evolving demands, adaptability is increasingly emerging as a differentiator for lenders seeking to capitalize on change.

Ongoing affordability pressures, shifting ownership patterns, and the emerging picture of EV financing are all factors lenders are navigating in today’s market. Each of these is manageable in isolation, but together they reveal the accelerating rate of change in the industry and the need for flexibility in the operational and technical foundations that lenders rely on. Increasingly, those able to thrive are the ones who can adapt to change and benefit from it - without embarking on a costly and time-consuming redevelopment project every time.

Financing models are changing

Rising vehicle prices and increasing total cost of ownership continue to intensify affordability pressures on customers in a challenging economic environment. As lenders seek to offer affordability levers to customers, established norms in the financial products and structures offered are being revisited. The processes and systems supporting these financing models, and the lenders behind them, must also evolve rapidly in response.

Terms are stretching - and processes with them

With average monthly payments reaching new highs (as reported by Edmunds), customers remain price-sensitive. One clear sign of affordability strain is the increase in financing duration. In the first quarter of 2026, the average new-vehicle loan term reached 69.48 months, and the average used-vehicle loan term reached 67.73 months, according to Experian’s State of the Automotive Finance Market report, with lease terms also inching up.

As lease and loan terms continue to lengthen, lenders are navigating extended servicing relationships and assuming greater risk. Rising delinquencies, underwriting changes, and applications from a broadening range of customer credit tiers further add to the factors influencing the current lending landscape. 

For lenders looking to respond to these changes, operational processes and the systems supporting them must provide the ability to model, price, and service a widening range of contract durations and structures.

Used-vehicle leasing moves from niche to strategy

New-vehicle leasing has long been an established financing option, with EVs, overarching affordability concerns, and shifting sentiment about vehicle ownership all contributing to the growth in lease penetration from post-pandemic lows, as noted in recent figures from JD Power and GlobalData. One of the more striking developments, however, is the exploration of used-vehicle leasing. Traditionally a minor proportion of the market, credit unions and captives alike are beginning to offer used-vehicle leasing as an affordability lever. While time will tell whether leasing can evolve to a meaningful portion of used-car financing, the economics could be compelling; with leasing offering a materially lower payment than a comparable loan, closing the affordability gap can make all the difference in the customer’s purchasing journey.

The operational reality is that for many lenders, adding used- or even new-vehicle leasing is a fundamental change which legacy systems may not be able to support. Systems designed for straightforward retail loans often cannot handle the complexities that come with lease residual value management, end-of-term and remarketing processes.

EVs and the residual value question

Residual value risk concerns with electric vehicles continue to play out. With hundreds of thousands of EVs coming off lease in 2026 (significantly more than prior years), early-vintage residual value assumptions are being challenged. The expiration of EV tax credits, a growing understanding of battery health and aging, and rapid technological change are all factors whose impact continues to unfold in a still uncertain environment for EV financing.

With the EV here to stay, the structures supporting their financing will continue to evolve. The lesson learned for many is that the flexibility to adapt to and plan for uncertainty can be the difference-maker. As the requirements to support EV financing continue to be established, lenders should be able to incorporate changes continually into their workflows, contract terms and product structures, uninhibited by system or workflow constraints.

Building for change

Underlying all these shifts in the current auto market is a common challenge. As lenders look to change the way they operate, adapting and expanding their product offerings, they can often end up running multiple systems, or even find themselves restricted by the capabilities of legacy platforms. This can result in fragmented data, inefficient processes, and an inability to increase financing penetration by implementing the products best suited to evolving customer demands. 

Building an operation that can respond quickly to change reduces risk in a rapidly evolving landscape. Consolidated, configurable, and modern platforms make change an everyday activity, rather than a major, bespoke project.

The shape of the auto finance market will continue to shift. While this alone is not novel, the rate and extent of that change is ever-increasing. The question for lenders then becomes not about predicting the next trend, but whether their operational and technological systems will let them respond to it.

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Alfa’s experience delivering efficient operations to complex top-tier lenders means we’re well placed to guide you in achieving your goals around originations, servicing, collections, and beyond.

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