Critical Shifts:
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Credit Expansion Over Affordability: Auto credit availability hit a high since November 2015, but access is driven by riskier structures—like longer terms and higher negative equity—rather than reduced prices or interest rates.
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Evolution of the BHPH Market: Buy Here Pay Here dealers have seen balances grow to $32 billion while deep-subprime borrowers dropped from 70% to 50%, indicating BHPH now serves a broader spectrum of consumers seeking lower payments.
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Supply Chain Trickle Effect: As expanding conventional credit allows some buyers to step up to newer used or CPO inventory, it may eventually free up trade-in supply for the lower-end vehicle market where high prices persist.
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Auto credit availability improved for the fourth consecutive month in August, reaching its highest level since November 2015. But the improvement doesn't necessarily mean vehicles have become more affordable for consumers who have been pushed toward the lower end of the market.
The Dealertrack Credit Availability Index rose 0.4% from July to 105.3, up 7.7% from a year earlier. Cox Automotive said the improvement was driven largely by looser loan structures, including longer terms and higher levels of negative equity, rather than lower borrowing costs. The share of loans longer than 72 months reached a record 31.3%, while negative equity rose to 57.4%. The average contract rate also increased.
That distinction matters for BHPH. A consumer may have more access to credit without having substantially more purchasing power. Experian reported an average used-vehicle loan amount of $27,070 in Q1 2026, with an average payment of $531 and an average term of 67.7 months. The average used-car interest rate was 11.43%.
A Different Credit Customer
The Federal Reserve's recent analysis helps explain where BHPH fits into that changing credit environment. The researchers describe BHPH dealers as occupying a “unique position in the auto market by serving as both the seller and financier of vehicles to their customers.” Unlike traditional dealers, BHPH operators control both sides of the transaction rather than connecting the customer with a third-party lender.
That distinction becomes more important as conventional credit expands. The Fed found that BHPH loan balances grew from approximately $10 billion in 2018 to $32 billion by the third quarter of 2025. At the same time, the share of BHPH balances attributed to deep-subprime borrowers fell from about 70% to roughly 50%.
The shift suggests BHPH is not simply a financing outlet for consumers who have been rejected elsewhere. The segment has grown while its customer mix has broadened, creating room for borrowers who may have access to conventional financing but still need a lower-dollar vehicle or payment.
Room to Move Up
Improving credit could also change the composition of the used-car market without eliminating demand at the bottom.As more consumers regain access to conventional financing, some may be able to move into newer used vehicles or CPO inventory rather than relying on the oldest vehicles in the market. Cox's August data showed CPO credit availability also improving, while used-vehicle credit reached a new series high.
That movement could eventually create more trade-in and wholesale inventory flowing through the vehicle age curve. The effect would not be immediate, and current used inventory remains relatively tight. But over time, consumers moving into newer vehicles can create additional supply for the next tier of buyers.
For BHPH operators, that could produce an unusual combination: a larger pool of consumers entering the financed-vehicle market while some customers move upward into newer inventory, potentially leaving more separation between the vehicles sought by conventional buyers and the lower-cost units needed by BHPH customers.
The underlying affordability problem remains. Cox reported that average used-vehicle listing prices reached $27,239 in August, up 7% year over year, while inventory remained below levels seen in 2022, 2023 and 2024.
The Bottom Line
Improving credit availability could bring more consumers back into the vehicle market while still leaving a substantial affordability gap. Some buyers may move into newer used or CPO vehicles as financing options improve, while others will remain focused on lower-cost vehicles and payments.
For BHPH, that creates the potential for a broader market on both sides: more consumers able to finance a vehicle, more movement through the used-vehicle supply chain, and continued demand for vehicles at the lower end of the market.
Credit may be getting easier. The car is still expensive.
