Pagaya Secures US$500m Auto Loan Deal with Castlelake

Financial services platform Pagaya Technologies has struck a half-billion-dollar deal to offload auto loans to private credit manager Castlelake as it seeks to expand its footprint in the vehicle finance sector.

Pagaya Technologies revealed on Monday that it has agreed terms with Castlelake on a forward flow arrangement worth up to US$500m.

The structure will see the Minneapolis-based asset manager further commit to purchasing auto loans originated through Pagaya's network as they are generated, providing the fintech with immediate liquidity.

Building on previous collaboration

The transaction marks the second major funding agreement between the parties this year.

Since launching in 2016, Pagaya has built relationships with 31 different lenders across consumer credit, point-of-sale financing and motor vehicle loans.

Earlier in the year, Payaga and Castlelake announced a US$2.5bn deal focused on personal loans – more than doubling their previous arrangement.

That pattern suggests Castlelake has developed considerable appetite for the credit assets flowing through Pagaya's platform, which uses machine learning to assess borrower risk profiles.

Recent industry standard

The deal comes as the auto lending sector faces increased scrutiny over credit quality and underwriting practices.

Gal Krubiner, who co-founded Pagaya, acknowledged these concerns when discussing the Castlelake arrangement.

“Recent headlines have reminded everyone in the market that confidence and caution must go hand in hand,” Gal Krubiner, CEO of Pagaya told Reuters.

He emphasised that Pagaya's model incorporates “rigorous dealer oversight and multiple layers of third-party verification” to catch potential problems early whilst still allowing lenders to broaden their customer base.

The company positions itself as enabling access to credit for borrowers who fall outside traditional lending criteria, using artificial intelligence to identify creditworthy applicants that conventional models might reject.

Aggressive securitisation push

Pagaya has been remarkably active in the asset-backed securities market throughout 2025.

Last month alone, it closed a US$400m securitisation backed by auto loans from partners including Ally and Westlake.

That transaction pushed Pagaya's 2025 auto securitisation volume to US$1.bn, a company record.

John Lundquist, Specialty Finance Partner at Castlelake, said his firm was pleased to support Pagaya's “technology and data-driven program in the auto lending sector”.

Since 2018, Pagaya has raised close to US$27bn through 66 separate securitisation transactions across its various lending products.

In a statement on LinkedIn, Gal says: “Our first auto forward flow agreement represents the evolution of our long-term strategy: building institutional-grade capital partnerships across asset types, supporting durable growth and delivering value to both lenders and investors”

Profitability turnaround

The forward flow agreement arrives as Pagaya demonstrates improved financial performance following previous results. 

The company reported positive net income under generally accepted accounting principles in both the first and second quarters of 2025, ahead of analyst expectations.

Second-quarter net income reached US$17m, marking a US$91m improvement on the same period last year.

"Pagaya has entered a new era in 2025 – an era of profitability," Gal declared when first-quarter results were published earlier this year. 

Funding diversification strategy

Forward flow agreements have become increasingly popular among fintech lenders seeking alternatives to traditional securitisation markets.

These arrangements provide predictable funding capacity and allow platforms like Pagaya to originate loans without permanently holding them on their balance sheets.

For asset managers such as Castlelake, the deals offer steady access to consumer credit portfolios that can be acquired at scale.

The structure essentially allows Pagaya to act as an origination engine whilst transferring the credit risk to institutional investors willing to hold the underlying loans.

That model has proven particularly attractive in the current environment, where funding costs remain elevated and capital efficiency has become paramount for fintech businesses seeking to demonstrate sustainable unit economics.