High interest rates didn’t just make cars more expensive—they made getting paid more uncertain for auto lenders. As loan terms stretch longer and household budgets tighten, dealers are finding that collecting payments has become just as challenging as closing the sale. And with delinquency rates nearing historic highs, how dealers approach collections matters more than ever.
While every dealership aims to collect what is owed, too many assume the solution is to simply intensify collections efforts. In doing so, they overlook opportunities within the sales and communication process that could have prevented many of those delinquencies in the first place.
By the time an account becomes delinquent, the window for resolution has often already closed. The real opportunity lies in preventing collections from being necessary at all. That requires eliminating friction for buyers at every stage of the journey, from initial communication through the payment experience.
Facing the Headwinds of Rising Delinquencies
This is an especially challenging moment for dealers pursuing collections. Structural pressures continue to increase payment strain for buy-here-pay-here (BHPH) dealers and across the subprime auto lending market, with no end in sight. According to TransUnion’s Consumer Credit Forecast, the 60-plus-day delinquency rate for auto loans is expected to exceed 1.5% by year-end, reaching levels not seen since the aftermath of the Great Recession. Subprime delinquencies hit a record 6.6% in early 2025, the highest since tracking began in 1994.
Several forces are driving this trend. Car payments have been rising faster than wages, with drivers now spending roughly 20% of their monthly income on vehicle-related expenses. One in ten spends more than 30%, a trend that skews heavily toward subprime borrowers. Insurance costs add further strain, with average annual premiums reaching $2,638 in 2025 and climbing significantly higher for riskier borrowers.
Nearly 30% of new car loans now extend beyond six years. When financial hardship occurs early in these long-term loans, borrowers can quickly end up underwater, leaving them with few viable options. In many cases, walking away becomes the path of least resistance. In this environment, dealers must address potential collection issues as early as possible.
Shortcomings in Traditional Communication Methods
The traditional collections process remains cumbersome. Agents cull through lists of past-due accounts, take payments by phone, and manually update records. This approach is labor-intensive, inconsistent, and breaks down as borrowers disengage. It consumes staff time, introduces compliance risk, and often fails to produce results.
Email can improve efficiency, but it comes with a major limitation: many borrowers, especially in the subprime segment, don’t consistently access email. As a result, open rates for collections emails are understandably low.
SMS text messaging stands out as the most effective communication channel, with open rates above 90%. For automotive borrowers, texting is immediate, accessible, and familiar. When paired with modern best practices, a text-first strategy consistently outperforms traditional outreach methods.
How Modern Collection Practices Reduce Friction
Automation has transformed collections operations. Today’s platforms send payment reminders before accounts fall past due, helping customers stay on track without requiring manual intervention. When delinquency does occur, automated escalation sequences deliver the right message at the right time, allowing agents to focus on the accounts that actually require human attention.
Even more impactful than resolving delinquencies is preventing them. Every point of friction in the customer journey, from application to final payment, creates an opportunity for disengagement. While many dealerships concentrate on recovering past-due accounts, top performers invest equally in pre-delinquency communication to ensure the process remains seamless.
The guiding principle is simple: meet customers where they are. Limiting payment options, such as accepting only cards or excluding cash alternatives, can alienate large segments of the customer base. Similarly, offering only English-language forms creates unnecessary barriers. These constraints force customers into uncomfortable or inaccessible processes, increasing the likelihood of delinquency.
A common misstep is designing collections processes around internal convenience rather than customer accessibility. Effective operations reverse that priority, building systems around how customers actually prefer to pay.
Conducting a Friction Audit
To identify unnecessary barriers, dealers should conduct a friction audit of their payment experience. Each eliminated obstacle can directly reduce delinquencies. Consider how many steps it takes a customer to complete a payment, which payment methods are accepted, whether multilingual options are available, and whether customers can pay in cash without visiting the dealership. It’s also important to assess flexibility—can customers make partial payments or commit to a promise-to-pay when they can’t pay in full?
Following this assessment, operational metrics should guide continuous improvement. Progress depends on having clear visibility into where friction exists and how it impacts outcomes. Key indicators include collections efficiency, measured as payments collected per agent hour; payment recency, or the share of accounts current within the last cycle; channel mix across payment methods; promise-to-pay fulfillment rates; and delinquency roll rates between stages.
The Gold Standard
Collections operations shouldn’t be built around chasing payments. It should be designed to make paying effortless—on the customer’s terms, in their preferred language, and through channels they already use.
The ideal experience is simple. A customer receives a text, clicks a link, and completes a payment in under two minutes. There’s no app to download, no account to create, and no need to call a representative. Most importantly, there is no friction.
Dealerships that prioritize this approach typically see measurable improvements in performance. By partnering with experienced collections management platforms, many have reduced delinquency, lowered charge-offs, strengthened customer relationships, and freed up time to focus on growth.
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