It’s been difficult to qualify for a car loan for months. August brought little change, keeping borrowing conditions challenging for car shoppers.
The Dealertrack Credit Availability Index tracks how difficult it is to qualify for all types of car loans. It decreased by 0.5% in August – a minor adjustment, but one that moved against car shoppers. Kelley Blue Book parent company, Cox Automotive, publishes the index.
The approval rate improved slightly during the month, meaning more borrowers qualified for loans. However, lenders asked for shorter loan terms, increasing the average monthly payment, and keeping down payment requirements high.
The share of subprime loans (to borrowers with credit scores under 620) increased but remains near historic lows. Lenders were slightly more willing to accept negative equity, folding the balance of old loans into new ones.
The credit market could improve for borrowers later in the year. The Federal Reserve has signaled that a rate cut is likely at its meeting next week. However, Cox Automotive Chief Economist Jonathan Smoke cautions that lenders won’t start cutting rates the moment the Fed does. With a September rate cut, “it is not likely that auto loan rates will decline much before year’s end,” Smoke says.
Sustained high loan rates and election season uncertainty keep many would-be car shoppers home, making it easier for cash buyers to negotiate a discount. Still, shopping is challenging for those who must borrow to buy a new car.
