Capital One Is Lending More to Subprime Borrowers. The Real Test Comes in 2027

With auto originations up 22% and subprime lending expanding, today’s relatively stable delinquency rates may tell us more about yesterday’s loans than tomorrow’s losses.

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McLean, VA – October 22, 2026 – Capital One Financial Corporation reported a significant increase in automobile loan originations during the third quarter of 2026, accompanied by modestly higher credit losses and a growing concentration of subprime borrowers. However, delinquency rates remained below year-earlier levels, suggesting that the effects of the company’s expanding lending activity have yet to become fully reflected in portfolio performance.

According to Capital One’s third-quarter earnings results, released October 20, the company originated approximately $13.1 billion in automobile loans during the quarter, compared with $10.73 billion during the same period in 2025. The increase of approximately 22% reflects substantial growth in the company’s auto finance business.

At the same time, borrowers with FICO scores of 620 or below represented approximately 32% of new originations, compared with 30% a year earlier.

Based on those percentages, the dollar volume of loans originated to subprime borrowers increased from approximately $3.22 billion to $4.19 billion, assuming the reported credit-score distribution applies proportionately to origination dollars. That represents an estimated increase of approximately 30% in quarterly subprime production.

The figures indicate that Capital One is not only expanding its automobile lending activity but also increasing the proportion of new business involving borrowers with lower credit scores.

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Credit Losses Rise While Delinquencies Remain Lower

Capital One’s auto finance net charge-off rate increased to approximately 1.59% during the third quarter, compared with 1.54% a year earlier.

Despite the increase in losses, the company’s reported 30-day-plus performing delinquency rate declined from 4.99% in the third quarter of 2025 to 4.64% in the third quarter of 2026.

The broader 30-day-plus delinquency rate, which includes nonperforming loans, also declined year over year, from 5.53% to 5.12%.

The combination of rising charge-offs and lower year-over-year delinquencies reflects different stages of the credit cycle. Charge-offs generally involve loans that have already progressed through serious delinquency or other loss-recognition events, while delinquency rates provide a more current measure of borrowers falling behind on payments.

Capital One reported approximately $714 million in gross auto loan charge-offs during the quarter, offset by approximately $352 million in recoveries, resulting in roughly $362 million in net charge-offs.

The recoveries figure includes collections associated with previously charged-off accounts and other recoveries recognized by the company. It should not be interpreted as the dollar value of repossessed vehicles or as a measure of completed repossessions.

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A Return Toward Pre-Pandemic Subprime Lending

Capital One management has attributed part of the increase in auto credit losses to changes in the company’s lending mix, including a return toward pre-pandemic levels of subprime originations.

The change comes as auto lenders continue balancing origination growth against borrower affordability, vehicle values and credit performance.

The expansion of subprime lending does not necessarily indicate an immediate deterioration in credit quality. Loans originated during recent quarters have not yet accumulated sufficient payment history to reveal their longer-term performance.

Consequently, the delinquency rates reported today largely reflect loans originated during previous quarters and years, when lending volumes, underwriting standards and borrower credit characteristics may have differed.

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Why the Effects May Not Appear Until 2027

Automobile loan losses typically develop over an extended period following origination. Depending on the borrower population and economic conditions, defaults may build through the first year and peak around 18 months after funding, although the timing varies considerably by loan vintage and credit tier.

For loans originated during the third quarter of 2026, that timeline would place a potential period of elevated default activity in late 2027 and early 2028.

Some deterioration could emerge sooner, with effects on repossession activity potentially becoming more apparent during the second half of 2027.

However, the performance of newer loans does not occur in isolation.

Auto loan portfolios contain multiple generations of originations, commonly referred to as vintages. As older loan vintages move beyond their periods of greatest default exposure, their declining losses can offset increasing defaults from more recently originated loans.

This overlapping performance can moderate changes in a lender’s overall delinquency and charge-off rates, even when newer originations carry different credit risks.

As a result, increased subprime production does not necessarily translate into an immediate or proportional increase in reported portfolio losses or repossession assignments.

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Implications for Collateral Recovery

For the repossession industry, Capital One’s expanding auto loan production and changing borrower mix could eventually influence recovery assignment volumes.

However, the relationship between loan originations, delinquencies and completed repossessions depends on several factors, including borrower cure rates, payment extensions, loan modifications, voluntary surrenders and lender-specific recovery policies.

A higher number of delinquent accounts does not automatically result in a corresponding increase in repossessions.

Likewise, a lender’s overall delinquency rate can decline while the absolute number of delinquent loans increases if its outstanding portfolio grows sufficiently.

Capital One’s third-quarter results do not establish whether its repossession assignments have increased, and the company has not provided a corresponding breakdown of completed vehicle recoveries in its quarterly financial disclosures.

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Another Major Auto Lender Reports Growing Originations

Capital One’s results follow similar third-quarter growth reported by Ally Financial.

In its October 20 earnings release, Ally reported $12.9 billion in consumer automobile originations, an increase of approximately $1.2 billion from the previous year.

Ally’s retail auto net charge-off rate increased slightly to 1.89%, compared with 1.88% a year earlier, while its 30-day-plus delinquency rate rose to 4.96% from 4.90%.

Although the two lenders differ in portfolio composition, underwriting practices and credit-risk characteristics, both reported increased auto lending volumes alongside higher year-over-year charge-off rates.

Capital One’s delinquency improvement contrasts with Ally’s modest year-over-year increase, underscoring the differences in portfolio performance among major automobile lenders.

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The Longer-Term Outlook

Capital One’s third-quarter results reflect a growing auto finance business with increasing exposure to subprime borrowers, even as current delinquency measures remain below year-earlier levels.

The performance of the company’s newer originations will become clearer as those loans season through 2027 and into 2028.

For lenders, collectors and collateral recovery providers, the significance of the company’s changing lending mix may therefore become more apparent in future reporting periods rather than in immediate changes to delinquency or repossession volumes.

Sources: Capital One Investor Relations — Third Quarter 2026 Earnings Release and Financial Supplement, October 20, 2026; [Ally Financial Investor Relations](https://www.ally.com/abo