Access to credit for auto financing keeps improving with subprime growth being the largest contributor.

That’s the primary assertion from Cox Automotive, which released the Dealertrack Credit Availability Index for September.

According to the latest update distributed on Tuesday, auto credit access improved for a fifth consecutive month in September, reaching its highest level since April 2015.

Cox Automotive said the September index increased 1.9% from the previous month to land at 107.1, which was 9.4% higher than last September.

Cox Automotive also reported that the share of loans to subprime borrowers rose for the second consecutive month to get to 17.4% in September, an increase of 80 basis points from August.

The subprime share in September was also 230 basis points higher year-over-year.

Scott Vanner, who is manager of economic and industry insights at Cox Automotive, gave a cautious assessment of what the trajectories might mean for finance companies.

“The index reached its highest level since April 2015 because credit loosened through loan structure and a higher subprime share, while the yield spread narrowed. The spread narrowed because the contract rates increased less than the five-year Treasury yield, which could reflect competitive pricing or contract rates that have not yet caught up with higher Treasury yields,” Vanner said in his analysis that accompanied the newest index reading.

“Lenders are taking on more risk through a higher subprime share, longer terms and more negative equity, which raises potential losses if borrowers default, while earning a smaller spread over Treasury yields. If Treasury yields continue to rise faster than contract rates, that combination becomes harder to sustain. If contract rates rise to catch up, however, higher payments could make vehicles more difficult for borrowers to fit into their budget, leaving lenders with limited room to maneuver,” Vanner continued.

Cox Automotive pointed out that the yield spread in September narrowed by 19 basis points — from 6.61% to 6.42% — to fall to its lowest level since December 2024.

And Vanner added the average contract rate rose 23 basis points to 11.22%, but the five-year U.S. Treasury yield rose 42 basis points to 4.80%, its highest level since July 2007.

From the consumer perspective, it’s all about stretching those terms and rolling negative equity into a new contract.

Cox Automotive said the share of loans with terms longer than 72 months rose to 31.8% in September, up 60 basis points and a record high in its dataset.  It’s also 490 basis points higher than a year ago

Vanner mentioned the increase was broad, with longer terms rising across all credit tiers and lender types.

When it comes to negative equity, the share of contracts with this component jumped 40 basis points in September to 57.8%

Vanner added negative equity was 540 basis points above the 52.4% recorded a year ago and above every monthly reading recorded from 2015 through 2019.

Also of note, Cox Automotive said down payments slipped to 12.8% in September, down 20 basis points from August and the lowest level since September 2022.

“Consumers continued to use longer terms, smaller down payments and negative equity in September, with a record 31.8% of loans exceeding 72 months,” Vanner said. “These structures can make a purchase easier to fit into a budget, but the flexibility borrowers gain up front comes at the cost of flexibility later.

“Higher total borrowing costs, more time underwater and a larger balance relative to the vehicle’s value leave less room to sell or trade the vehicle if income, expenses or other circumstances change,” he went on to say.

Bottom line: After climbing 170 basis points in June and 120 basis points in July, then holding flat in August, the overall loan approval rate rose 30 basis points to 73.9% in September, its highest level since last August, according to Cox Automotive.

The Dealertrack Credit Availability Index tracks six factors that impact auto credit access:

—Loan approval rates
—Subprime share
—Yield spreads
—Term length
—Negative equity
—Down payments

Reported monthly, the index indicates whether access to auto credit is improving or declining.