It grew harder for Americans to qualify for a new car loan in July. But that’s nothing new. July marked the fourth straight month of tightening credit standards.
The Dealertrack Credit Availability Index tracks how difficult it is to qualify for all types of car loans. It decreased in June, moving against borrowers. Kelley Blue Book parent company Cox Automotive publishes the index.
Prices Falling, But Interest Makes Affordability Challenging
The price of the average new car has fallen through most of 2024, though it ticked up slightly in June. The listing price of the average used car continues to decline.
But that hasn’t made buying a car easier for most Americans.
Banks, credit unions, and even the captive finance companies that work directly for automakers desperate to sell cars have all tightened their lending standards. In June, approval rates fell, and the already-low number of subprime loans (those for borrowers with credit scores under 620) fell.
Only one factor moved in buyers’ favor last month – lenders were more willing to accept negative equity as part of a new car loan. But down payments, loan lengths, and monthly payments all remain at relatively high levels.
New cars grew harder to afford in June, expressed in terms of living expenses, even though prices have fallen. That’s true primarily because of persistently high interest rates. The Federal Reserve declined to lower interest rates at its most recent meeting.
Some Shoppers Digging in To Wait
The Fed is now under immense pressure to make a rate cut in September. If it does, the change won’t immediately hit the auto credit market. Even if the board makes a September cut, says Cox Automotive Chief Economist Jonathan Smoke, “it is not likely that auto loan rates will decline much before year’s end.”
That has many Americans digging in to wait on a new car purchase. The Conference Board Consumer Confidence Index increased 2.6% in July, as views of the future improved, but views of the present declined.
Consumer confidence was down 12.0% year over year for its worst year-over-year performance since July 2022. Plans to purchase a vehicle in the next six months declined compared to June and were lower than in July last year. That represents the lowest share of people planning to buy in nine months.
