Cox Automotive‘s Dealertrack Credit Availability Index revealed improved auto credit availability across all channels and lender types in December 2024. The All-Loans Index reached 95.5, marking a 0.2% uptick from November and a 1.9% increase year-over-year. This represents the highest level of auto credit access since March 2023, indicating a positive shift in lending conditions.
Several key factors drove this increase in credit availability, contributing to a more favorable environment for both consumers and lenders. First, approval rates significantly increased by 40 basis points (BPs) in December. This uptick suggests that more consumers are being approved for auto loans, and those who are approved are securing better terms. Higher approval rates and more favorable loan conditions have played a critical role in easing access to credit for a broader range of consumers.
In addition to rising approval rates, yield spreads narrowed by 25 BPs in December. Yield spreads, which measure the difference between auto loan rates and bond yields, became smaller as the U.S. Treasury bond yields increased by 2 BPs. This narrowing of the spread made auto loans more favorable than bond yields, leading to lower consumer borrowing costs. The average auto loan rate also dropped by 23 BPs compared to November, and it has decreased by 175 BPs since March, providing further relief to borrowers in the form of lower monthly payments and reduced overall loan costs.
While some factors saw tightening, such as a decrease in the share of subprime loans and a reduction in loan terms longer than 72 months, the overall trend was toward more accessible credit. The subprime share decreased by 50 BPs, which may restrict access for high-risk borrowers, but improvements in other areas, such as approval rates and loan terms offset this. The share of loans with terms longer than 72 months fell by 20 BPs, which means consumers are paying off loans faster, reducing their interest burden in the long run.
Overall, December’s credit availability index points to an encouraging trend in the auto finance market. Consumers are benefitting from better approval rates, lower loan costs, and more favorable borrowing conditions, particularly when purchasing used vehicles from franchised dealers. However, lenders will continue to navigate a mixed environment, with credit unions loosening their policies and banks facing more restrictive lending conditions. While borrowing is becoming easier, the market remains complex and varied depending on the lender and loan type.
