On the Dash:
- Credit availability climbed to its highest level since November 2015, giving dealers a stronger financing environment heading into fall.
- Captives, banks and finance companies all expanded credit access, while credit unions slipped slightly.
- Longer loan terms and rising negative equity helped more shoppers qualify, but dealers should watch affordability and borrower risk.
The Dealertrack Credit Availability Index increased for the fourth consecutive month in August, with the All-Loans Index rising 0.4% to 105.3. This is a 7.7% rise from the previous year and marks the highest level since November 2015. The boost gives dealers a more favorable financing environment heading into the fall sales season, driven mainly by looser loan terms rather than lower interest rates.
The proportion of loans with terms exceeding 72 months hit a record 31.3%, up 20 basis points from July and 580 basis points from the previous year. Negative equity increased to 57.4%, a 60-basis-point rise since July, while down payments remained steady at 13%, the lowest since October 2022. These changes help reduce immediate payment pressures and enable more consumers to complete their purchases.
Subprime borrowers accounted for 16.6% of loans in August, up 20 basis points from July in the segment’s first rise in five months and up 300 basis points year over year, a jump that drove much of the overall index gain. According to the Dealertrack report, the larger subprime share doesn’t mean lenders issued more subprime loans. Overall lending volume has declined more sharply.
Higher rates remain
Additionally, loan approval rates improved to 73.9%, up 20 basis points from July, marking the fifth consecutive monthly increase and the highest approval rate in 12 months. However, it remains 50 basis points below August 2022. Monthly gains have slowed compared with the larger increases in May and June. Three of four lender categories expanded credit access in August, with captive lenders leading with a 1% monthly rise to a new series high. Banks increased 0.8%, and finance companies rose 0.5% to their own new high. Notably, credit unions slipped 0.1%. Year over year, captives led all lender types with a 14.9% increase, followed by banks at 13.4%.
Certified pre-owned (CPO) credit availability posted the largest monthly gain, up 1.2% to its highest level since November 2022. The All New segment rose 0.5%, Independent Used and Franchised Used each gained 0.2%, and All Used climbed 0.1%, with all three used-vehicle channels hitting series highs. Non-Captive New was the only channel to decline, falling 0.1%.
The average contract rate rose 9 basis points to 10.99%, and the five-year Treasury yield climbed to 4.38%. The yield spread widened four basis points to 6.61%, partly offsetting the gains in credit availability. However, it remains below both its year-ago level and its average since the start of 2023, underscoring the gap between easier access and more affordable credit.
