Auto loan availability dropped to a two-year low in May under restrictive lending standards as consumers struggled to obtain financing for their vehicle purchases.
According to data from Cox Automotive and the Dealertrack Credit Availability Index, auto loan access decreased 0.4% month-over-month and 8% year-over-year. At 96.4, the index score is the lowest seen since February 2021 and continues the downward trend starting near May 2022. While some factors, such as term lengths and down payment percentages, improved for consumers, the diminishing number of subprime credit seekers and reductions in negative equity ultimately drove availability down across all channels.
Although credit became more difficult to acquire, the approval rating remained steady from April but showed a decline of 2.4% over the year prior. Auto loans with terms of 72 or more months grew by 0.6%, remaining slightly below their score in May 2022. Between all examined channels for the month, Cox Automotive notes that certified pre-owned loans were the least accessible.
These shifts in credit availability accentuate the long-lasting effects of the COVID-pandemic. Although certain factors straining consumer finances, such as inflation and interest rates, may be poised to recover, the current mix of high prices and debt is still largely unfavorable. Auto loans are especially important for subprime buyers, which have been effectively forgotten by car manufacturers.
Bringing customers back to the market will require dealers and OEMs to address the affordability crisis, which, along with limited auto loan access, has served as a roadblock to pent-up demand. Although production output remains limited, the return of inventory to dealership lots may be enough to overcome this obstacle. When the ratio of supply and demand will even out, however, remains uncertain.