Reducing risk, prompting sales amid rising DQs, fraud 

The auto finance industry is navigating a landscape marked by rising delinquencies, escalating fraud and evolving consumer behaviors.  

As of early 2025, these challenges have intensified, prompting lenders to seek advanced solutions to mitigate risks and maintain the flow of vehicle financing. AI emerges as a pivotal tool in this context, offering lenders the capability to address these issues effectively and facilitate responsible vehicle ownership. 

Rising auto loan delinquencies 

Recent data indicates a concerning increase in auto loan delinquencies: 

• Subprime borrowers: As of January 2025, 6.56% of subprime auto borrowers were at least 60 days past due on their payments, the highest rate recorded since tracking began in 1994.

• Overall delinquency rates: The share of auto loans more than 60 days delinquent climbed to 1.47% in the fourth quarter of 2024, surpassing the previous peak of 1.45% recorded in Q4 2009 after the Great Recession. 

These trends underscore the financial stress faced by consumers, influenced by factors such as inflation, rising interest rates and increased costs of vehicle ownership. 

Escalating auto loan fraud 

Fraudulent activities in auto lending have reached unprecedented levels: 

• Synthetic identity fraud: Over the past five years, synthetic fraud in U.S. auto loans has surged by 105%, accounting for $2 billion of the $3.2 billion total fraud in the lending market.

• Overall fraud exposure: The auto industry faced an estimated fraud loss exposure of over $7.9 billion in 2023, with a 98% increase in synthetic identity attempts and a 30% rise in credit washing incidents, according to Point Predictive’s 2024 fraud trends report. Fraud exposure jumped to $9.2 billion in 2024, according to the 2025 trends report. 

These developments highlight the need for robust fraud detection and prevention mechanisms to protect lenders from significant financial losses. 

Role of AI in mitigating risks 

AI-powered tools, when combined with high-quality data, have become essential in helping lenders combat fraud and delinquency risks. 

1. Cross-referencing data 

• A fraud consortium aggregates data from multiple sources, allowing the identification of patterns that indicate synthetic identities. 

• If document verification reveals inconsistencies in an applicant’s ID, Social Security number or other details, those discrepancies can be checked against consortium data to see if similar anomalies exist elsewhere. 

2. Spotting reused or manipulated documents

• AI-powered document review can detect if the same bank statement, pay stub, government ID, or utility bill has been slightly altered and reused across multiple applications. 

• A fraud consortium helps flag these repeat offenders by tracking documents used across different institutions. 

3. Enhanced fraud detection

• Income calculation: Ensuring that stated incomes align with verified financial records reduces the risk of income misrepresentation. 

• Behavioral pattern analysis: Identifying inconsistencies indicative of potential fraud allows for proactive measures against fraudulent activities. 

4. Predictive delinquency management

• Early warning signals: AI-driven insights detect borrowers at risk of payment difficulties before defaults occur, enabling timely interventions. 

• Customizable risk models: Allowing lenders to adjust risk tolerance based on real-time market conditions and borrower trends facilitates more accurate risk assessment.   

By leveraging AI, lenders can create more flexible loan structures, offer personalized repayment plans, and engage with at-risk borrowers before they default — ultimately reducing losses and improving borrower retention. 

Tax season’s impact on auto financing 

Tax season traditionally influences consumer behavior in the auto finance sector: 

• Increased vehicle purchases: Tax refunds often serve as down payments, boosting vehicle sales during this period.

• Delinquency trends: Some borrowers utilize tax refunds to catch up on overdue payments, temporarily reducing delinquency rates. 

 However, in 2025, factors such as smaller refunds due to tax credit adjustments and economic uncertainties may alter these patterns. Lenders should anticipate potential fluctuations in payment behaviors and vehicle demand during this season. 

A smarter path forward for lenders 

The evolving auto finance landscape necessitates that lenders adopt advanced AI-driven solutions  to effectively manage rising delinquencies and fraud risks.  

By integrating real-time analytics and data verification, lenders can strengthen decision-making processes, mitigate risks and continue to provide financing solutions that meet consumers’ needs.  

This proactive approach not only safeguards lenders’ portfolios but also ensures that qualified borrowers have access to the vehicles they require, fostering a healthier and more resilient auto finance ecosystem. 

Jessica Gonzalez is the vice president of lending strategies at Informed.IQ and has more than 15 years’ experience in the financial services industry, including tenures at Santander Consumer USA and Visa. 

Content sponsored by Informed.IQ. 

Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information. Early-bird registration is available here.