Canadian auto lenders turn to AI amid affordability crunch

Canada’s auto lending sector is facing a period of transformation. While dealer reserves continue to be a core part of the market, rising vehicle prices, higher interest rates and growing regulatory scrutiny are challenging traditional lending models. This shifting environment is pushing lenders, dealers and borrowers to rethink long-standing practices and explore more transparent and efficient ways to balance profit with credit access, according to Earnix.

Dealer reserves have long fuelled auto loan origination in Canada, yet they are now proving problematic.

Each payout to dealers directly cuts into lenders’ margins, and dealers often gravitate toward lenders offering higher reserves. This dynamic forces lenders into a difficult choice between maintaining loan volume or protecting profitability.

Meanwhile, new disclosure rules from the Financial Consumer Agency of Canada (FCAC) have raised the bar for compliance.

Dealer incentives typically emphasise short-term affordability over the total borrowing cost, leading many borrowers into longer loan terms or higher interest rates—factors that can heighten default risks.

The opacity surrounding reserve mark-ups can also erode consumer trust and strain dealer–lender relationships. Although reserves remain common, they often hinder transparency and sustainable profitability.

How AI can address both challenges

The convergence of reserve pressures and affordability issues demands smarter tools—and this is where AI-driven pricing analytics platforms, such as those developed by Earnix, are gaining traction.

Rather than relying on traditional credit score bands, Earnix’s AI technology personalises loan terms by evaluating each borrower’s unique risk profile and price sensitivity.

This allows lenders to avoid overpricing strong borrowers while preventing losses from underpricing riskier ones. At the same time, AI can help optimise dealer compensation through complete loan packages that integrate APR, reserves, bonuses and eligibility rules.

Earnix’s solution enables lenders to reward dealer performance based on metrics like delinquency rates or customer satisfaction instead of simply rewarding higher mark-ups. Real-time simulations further allow analysts to test various strategies, striking a balance between fairness and profitability.

Benefits for lenders

Earnix’s AI-powered pricing and optimisation platform helps lenders protect yields by moving toward performance-based compensation, reducing margin erosion and improving transparency.

This approach can also open up financing opportunities for underserved groups, including immigrants and younger Canadians, by tailoring terms to their individual risk profiles.

Furthermore, the platform extends beyond dealer channels, enabling direct lending via mobile apps, customer portals and white-label digital platforms. By integrating with underwriting and decisioning systems, lenders can provide instant, personalised offers while maintaining consistent risk and margin controls.

The result is faster approvals, improved customer retention and full auditability—achieved without compromising compliance or profitability.