It grew easier to qualify for a car loan for a second month in July. But car shoppers needed that – late spring had seen the tightest loan standards in two years.
The Dealertrack Credit Availability Index tracks how difficult it is to qualify for all types of car loans. It loosened in July, reflecting that auto credit was easier to get than in April, May, or June.
Kelley Blue Book parent company Cox Automotive owns Dealertrack.
Loosening From Historically Tight
Conditions remain historically tight. Even with July’s increase in loan qualifications, access was tighter by 5.2% year over year, and compared to February 2020, access was tighter by 1.8%.
Approval rates increased in July. They’ve hit record lows this year, with the Federal Reserve recently reporting that more than 14% of applicants were turned down over the 12 months ending in June.
But loan officers got to more approvals, in part, by keeping borrowers in debt for longer. Average loan terms lengthened in July. They also accepted lower down payments than in June. Credit unions tightened their standards, while the captive finance arms that serve particular automakers loosened theirs.
Used car lending standards loosened, while those for Certified Pre-Owned (CPO) cars tightened.
Conditions Still Tough for Some Borrowers
Subprime loans – those given to borrowers with credit scores under 620 – declined to 10.4% from 10.5% in July and were down 1.1 percentage points year over year. Subprime and deep subprime loans were nearly a quarter of the market as recently as 2018. The new car market has grown largely inaccessible to lower-income or poor-credit buyers as automakers have increasingly focused on building mostly higher-priced cars.
The Conference Board Consumer Confidence Index increased by 6.3% in July as views of both the present situation and future expectations improved. Consumer confidence was up 22.8% year over year. Plans to purchase a vehicle in the next six months increased to the highest level in nine months and were up year over year.
