Auto loans were easier to obtain in August, according to the latest credit availability data from Cox Automotive.
Overall loan access improved from July by 1.8%, pushing credit availability scores to their highest point since last November. However, access remains 2.8% more restricted than the previous August. Contributing to the month’s more flexible lending practices were narrower yield spreads and higher negative equity share, although longer average terms, fewer down payments and lower loan application approvals prevented a more substantial correction from occurring. Auto loan accessibility for certified pre-owned (CPO) vehicles improved the most from the prior month, while new cars saw restrictions tighten the most. Nevertheless, compared to August 2022, used vehicles have seen credit access worsen more than new or CPO.
The changes in August continue trends seen over the course of summer, with banks and lenders ending restrictive policies put in place earlier this year. While consumers were already struggling with lower auto loan availability as a consequence of the COVID pandemic, the collapse of several U.S. banks in spring led many creditors to tighten access even more. At the time, concerns were also high that inflation, interest rate hikes and other financial roadblocks would lead to a recession later in the year, which likely would have seen lending restrictions increase once more. However, this summer, which saw consistently high demand and small but notable signs that consumer prices were responding to disinflationary measures enacted by the Federal Reserve, helped ease some of these anxieties.
Still, car buyers still need help to afford auto loans for new and used vehicles. Monthly payments have fluctuated over the course of the year but remain much higher than they were before the pandemic. Alternatives to a traditional car loan, such as leasing and renting, are consequently seeing their popularity return, although their use remains comparatively limited. With a season of stagnating sales on the horizon, dealers will need to continue working with their clients in areas of financing to ensure that sales remain steady despite a colder car market.