Auto Finance Industry Trends: The Shift to Digital

From instant loan overpayment refunds to AI-powered underwriting, digital technology is rapidly transforming the automotive finance industry. Learn about the top five trends driving this shift and how digital payment solutions for auto lenders can help finance companies streamline their operations while meeting modern consumer preferences.

The State of the Industry

Industrywide auto loan and lease outstandings grew year over year to reach $1.78 trillion at the end of 2024, according to Auto Finance News. Across the top 100 financiers in the U.S., originations increased 9.6% year over year, and leasing volume among captives rose by 4%.  

While the U.S. automotive industry is growing, lenders face challenges such as rising delinquency rates, regulatory changes and increased fraud risk. As banks and credit unions gain market share, lenders face greater competition along with higher consumer expectations for seamless digital experiences. Current and emerging digital innovations, including digital payment solutions, can help lenders meet these challenges.  

Trend #1: Digital Payments Support Risk Management

While auto lenders face significant regulatory and credit risks, they can mitigate losses by adopting effective risk management strategies—such as switching to digital payments. Modern payment solutions help lenders manage and reduce risk due to:

Regulatory changes: Increased state and federal regulatory scrutiny in recent years poses financial and reputational risk for auto finance companies. Digital solutions simplify compliance by providing detailed audit trails and faster payment options which help lenders adhere to requirements such as delivering consumer refunds within the required time frame.

Fraud: Check fraud and mail theft are on the rise. Digital transactions offer a safer alternative to checks, helping finance companies securely accept and make payments to their customers while protecting consumers' personally identifiable information (PII) and sensitive payment data.  

Late and missed payments: Digital solutions enable multiple, convenient payment options, such as online portals, mobile apps and text-to-pay—making it easier for borrowers to pay on time. The same is true when finance companies need to issue disbursements such as loan overpayment refunds. Sending a timely refund is easy and automatic with a modern platform, whereas traditional checks can take weeks to process and arrive in the mail.

Evolving preferences: Rising borrower expectations increase the pressure to deliver a modern experience with the payment choices today's consumers prefer. Automotive lenders must identify trends and stay ahead of the curve to ensure customer satisfaction, navigate market trends and maintain profitability.

Trend #2: Digital Solutions Streamline Auto Lending

A number of digital innovations are helping lenders streamline their financing, customer service and payment processes. These include:

Artificial intelligence (AI) - AI is transforming the auto lending landscape, enabling lenders to make more informed decisions and improve the customer experience while reducing their operational burden. With AI, lenders may be better equipped to provide personalized offers, approve loans faster, manage risk and strengthen their fraud prevention tactics.

Digital lending platforms - Auto finance companies are leveraging digital platforms to improve their origination processes, reduce risk, and increase revenue. These solutions bring borrowers online and mobile-first experiences that provide greater convenience and choice. Lending platforms typically integrate seamlessly with other systems and consumer experiences, offering a smoother journey.

Digital disbursement solutions - Modern payment solutions help automotive finance companies issue refunds quickly and securely. Borrowers may be owed a refund following overpayment of their loan or the cancellation of an aftermarket product such as GAP insurance or a vehicle service contract. Going digital helps companies reduce their costs, risk and administrative burden while providing a better experience for recipients.

Trend #3: Flexible Financing Options Gain Popularity

Digital innovations enable the financing options today's consumers look for, such as vehicle subscriptions, longer-term loans and flexible payment plans. Benefits to these solutions include:

Reduced financial burden: The average monthly car payment for a new vehicle was $745 in Q1 of 2025, a slight (1.1%) increase from 2024. With flexible finance options, consumers can purchase the vehicles they need while keeping their payments affordable.

Consumer choice: Having options allows consumers to maintain greater control over their finances. One popular solution is a flexible loan where the borrower pays smaller monthly loan payments and can choose how to handle their balance at the end of the loan term. For instance, the borrower could pay a final large "balloon" payment and own their car outright, refinance the loan balance or trade in the vehicle. Giving borrowers the power to choose their next move helps prevent delinquencies while driving customer satisfaction.

Fewer delinquencies—and lower costs: In 2024, Cox Automotive reported a 23% year-over-year increase in vehicle repossessions, and consumers continue to struggle with affordability. Auto lenders and dealerships are responding to these challenges by offering more innovative and budget-friendly financing options. By ensuring that borrowers have a payment plan that works for them, lenders can help reduce the costs associated with delinquencies, collections and vehicle repossession.

Trend #4: Credit Unions Lead with Alternative Financing

Credit unions play an increasingly important role in the auto lending industry, holding the second-largest market share (23.7%) as of Q1 2025. Many provide alternative financing options, such as online lending platforms, that compete with traditional bank loans. By leveraging their membership-based model to offer more competitive rates and terms, and by providing more personalized service to borrowers, credit unions have raised the bar for exceptional customer experiences.

As the growth of alternative financing options drives innovation and competition, auto finance companies can keep pace with credit unions by offering competitive choices and digital-led experiences.

Trend #5: Digital Refunds Replace Checks

Digital innovations help to streamline the pre-approval, underwriting, closing and account servicing stages of the auto lending life cycle. But what about loan closures? While many lenders already use digital solutions earlier in the loan cycle, they may still default to legacy systems for processes such as issuing loan overpayment refunds. Going digital offers several benefits, including:

Eliminating the cost of checks. Refund checks can cost lenders as much as $15 each, according to Onbe internal data. These costs include fulfillment, exceptions handling and unclaimed property management, with exceptions comprising the largest expense. Digital payments not only cost less to fulfill, but they reduce the manual touches required for return mail logging and research, stop pays and reissues.

Improving delivery rates. Onbe found that more than 15% of mailed checks are returned, whereas digital payments have much higher delivery rates. Ensuring refunds reach their recipients cuts back on business costs and reduces customer service queries, such as "Where's my payment?" As incidences of mail theft and check fraud continue to rise, going digital also prevents payments from being stolen, reducing the impact of fraud on both lenders and their customers.

Reducing regulatory risk. Digital solutions help lenders automate their refund flows, ensure timely delivery, maintain audit trails and handle unclaimed property compliantly. Auto finance companies will be better equipped to stay ahead of evolving regulations while reducing the operational burden of compliance.

Modernizing the customer experience. Digital payments offer consumers greater levels of choice, convenience and security when receiving and spending their refunds. Borrowers can enjoy consistency and convenience across the entire loan lifecycle—no more disconnect between their mobile-first borrowing experience and receiving a paper refund check. With 88% of consumers preferring digital payments, upgrading the refund process is a clear win for both lenders and borrowers.

These and other digital-powered trends continue to drive growth, cost-efficiency and improved borrower experiences across the auto lending landscape. Ready to embrace the future of auto finance? Learn more about Onbe's automotive payout solutions here.