Different vehicles, different borrowers, different strategies.

Auto lending isn't one market — it's two. New vehicle lending and used vehicle lending have different competitive dynamics, different borrower profiles, and different opportunities for banks and credit unions.

Understanding these differences matters for strategy. Where you focus resources, how you structure rates, and which borrowers you target should reflect the distinct realities of each market. Treating auto lending as monolithic means missing opportunities in both.

Here's how the new and used vehicle markets differ — and what that means for your auto lending approach.

The Competitive Landscape: New vs. Used

New vehicle lending

The new car market is dominated by captive lenders — the financing arms of automakers. Toyota Financial, Ford Credit, GM Financial, and their peers have structural advantages that are hard to overcome:

• Embedded presence: Captive financing is built into the dealer experience. It's the default, presented automatically at point of sale.
• Promotional rates: Automakers subsidize 0% or low-rate offers to move inventory. These loss leaders are impossible to match with traditional lending economics.
• Brand alignment: Buying a Toyota with Toyota Financial feels natural. Using a credit union requires the buyer to bring an outside element into the transaction.

Banks and credit unions can win new vehicle loans, but they're fighting uphill against captives — especially when promotional rates are in play.

Used vehicle lending

The used car market is more fragmented and more favorable for traditional financial institutions:

• No captive dominance: Captive lenders focus on new vehicles. Used car financing comes from banks, credit unions, finance companies, and dealer-arranged lending — a more level field.
• Dealer variability: Used car dealers range from franchised dealer used lots to independent dealers to private sales. Not all have sophisticated F&I operations; some buyers finance after purchase.
• Higher rates, higher margins: Used vehicle rates are generally higher than new, reflecting vehicle depreciation and risk. This creates more margin opportunity — but also more competition from subprime lenders.

For many institutions, used vehicle lending is where the real opportunity lies — less captive competition, more margin, and borrowers actively seeking financing options.

Borrower Differences

New and used vehicle buyers aren't just buying different cars — they often have different financial profiles and different needs.

New vehicle buyers

Generally stronger credit profiles (captives are picky about who gets promotional rates). Often buying for the warranty, latest features, or specific new models. May be more brand-loyal and less price-sensitive. Frequently repeat buyers who've financed before.

Used vehicle buyers

Broader credit spectrum — from excellent credit buyers seeking value to credit-challenged buyers who can't access new car financing. More price-sensitive overall. May be first-time car buyers, buyers stretching their budget, or buyers who simply prefer the value proposition of used.

Implication for institutions

Used vehicle lending reaches a broader audience but requires more nuanced risk-based pricing. Institutions comfortable with near-prime or credit-builder lending can find significant volume in used vehicles. Institutions focused only on prime credit will find more competition but cleaner portfolios.

Rate Structure Considerations

How you structure rates for new vs. used vehicles affects both competitiveness and profitability.

Rate differential

Used vehicle rates are typically 1-2 percentage points higher than new vehicle rates for the same credit profile. This reflects higher loss rates (older vehicles, different borrower mix) and faster depreciation (collateral loses value more quickly).

If your rate differential is too small, you're underpricing used vehicle risk. If it's too large, you're not competitive in a market where you could be winning.

Vehicle age and mileage tiers

Many institutions tier used vehicle rates by age, mileage, or both. A 2-year-old certified pre-owned vehicle is a different risk than a 7-year-old high-mileage car. Tiered pricing reflects this reality and lets you compete on newer used vehicles while maintaining discipline on older ones.

Term limits

Longer terms on older vehicles create negative equity risk — the borrower owing more than the vehicle is worth. Maximum terms that decline with vehicle age (e.g., 72 months for newer used, 48 months for older used) protect against this while still offering competitive financing.

Promotional strategy

You can't match captive 0% offers on new vehicles. But you can run promotional rates on used vehicles where there's no captive competition. Strategic promotions on used vehicles — especially certified pre-owned or late-model used — can drive volume in a segment where you're more competitive.

The Digital Experience: New vs. Used

Your digital auto lending experience should recognize that new and used vehicle buyers may have different needs and questions.

Don't force premature selection

Many borrowers — especially early in their shopping — haven't decided between new and used. A digital experience that immediately asks "New or Used?" forces a choice they may not be ready to make. Better: ask about budget, desired payment, or vehicle type, and let the tool show options across both categories.

Explain the trade-offs

Borrowers weighing new vs. used benefit from understanding the financing differences: lower rates on new but faster depreciation, higher rates on used but lower purchase price. Guided selling tools that help borrowers understand these trade-offs — in terms of their actual budget and payment goals — build confidence and conversion.

Show realistic scenarios

A borrower looking at a $400/month payment can see: here's what that gets you in a new vehicle, and here's what it gets you in a used vehicle at your credit profile. Side-by-side scenarios make abstract rate differences concrete.

Handle edge cases

Certified pre-owned (CPO) vehicles straddle the line — used cars with some new-car attributes. Private-party purchases involve different documentation than dealer purchases. Your digital experience should accommodate these variations without confusing the mainstream case.

Marketing Implications

Where you focus marketing dollars should reflect where you can most effectively compete.

Consider emphasizing used

If captives dominate new vehicle financing in your market, competing for used vehicle loans may generate better return on marketing investment. Messaging focused on used vehicle financing — "Get a great rate on your next car, new or used" — signals that you're a viable option for the larger used market.

Target used vehicle behaviors

Digital advertising can target behaviors associated with used car shopping: visits to used car listing sites, searches for specific used models, engagement with car value estimators. These signals indicate shoppers who are more likely to need non-captive financing.

Refinancing as a used-market strategy

Buyers who financed used vehicles through dealers or finance companies are strong refinancing candidates. They likely paid higher rates, may have been credit-challenged at purchase but improved since, and aren't locked into captive financing loyalty.

Seasonal timing

Used vehicle demand has different seasonal patterns than new. Tax refund season drives used vehicle purchases. Late summer (before new model year releases) can push buyers toward used. Marketing timing that aligns with used vehicle buying cycles maximizes impact.

Portfolio Considerations

The mix of new vs. used in your auto portfolio affects overall performance and risk.

Loss rate differences

Used vehicle portfolios typically have higher loss rates than new — different borrower mix, faster depreciation, older collateral. Your risk models and pricing should reflect these differences, and portfolio concentration limits may be appropriate.

Collateral recovery

When loans default, recovery on used vehicles is generally lower. The cars are older, less valuable, and depreciate faster during the recovery process. This affects loss-given-default assumptions and should inform LTV limits on older vehicles.

Relationship potential

Used vehicle borrowers may have different relationship potential than new. They may be younger (first car), rebuilding credit, or more transactional in their banking. Consider how auto lending fits into broader relationship strategy and whether used vehicle borrowers become long-term customers.

Strategic Positioning

Based on these dynamics, institutions typically take one of several strategic positions:

Compete broadly across both markets

Offer competitive rates on new and used, accept that new vehicle volume will be limited by captive competition, and treat auto lending as a full-spectrum product. This is the default approach but may spread resources thin.

Emphasize used vehicle lending

Acknowledge that new vehicle financing is captive-dominated and focus energy on used vehicles where you can actually win. Build marketing, pricing, and digital experience around the used vehicle opportunity. Accept less new vehicle volume in exchange for greater share of the used market.

Focus on specific segments

Specialize in certain vehicle types (trucks, SUVs), certain channels (credit union indirect programs, direct-to-consumer digital), or certain borrower profiles (prime only, credit-builder, etc.). Specialization can create competitive advantage in chosen niches.

De-emphasize auto lending

Some institutions decide the competitive landscape is too challenging and allocate resources elsewhere — home equity, credit cards, other products. This is a legitimate strategic choice, though it means leaving a large consumer lending category to competitors.

The Takeaway

New and used vehicle lending are different businesses with different competitive dynamics. Lumping them together as "auto lending" obscures strategic choices that matter.

In new vehicles, captive lenders have structural advantages — promotional rates, embedded distribution, brand alignment — that traditional institutions can't fully overcome. In used vehicles, the field is more open, the opportunity is larger, and competitive rates actually win loans.

Most banks and credit unions will find better returns focusing on used vehicle lending, refining rates and digital experience for that market, and treating new vehicle loans as a bonus when they happen rather than a core focus. That's where the competition is winnable — and where the volume is waiting for institutions willing to compete for it.