Report: Auto Loan Rejections Are Up and Poised to Keep Increasing

Matt Posky
by Matt Posky

report auto loan rejections are up and poised to keep increasing

With dealer lots starting to fill back up with product after years of lean inventories that encouraged salespeople to ask for absolutely ludicrous prices, the Federal Reserve has found that lenders are declining would-be borrowers at a record-setting pace. 

The reasons for this are many. Annual percentage rates have come up, requiring consumers to pay more money over time that lenders just aren’t certain they’ll see a return on. More people are also defaulting on loans across the board and inflationary pressures are poised to make the issue worse since the dollar just doesn’t go as far as it used to.  

Based on new data released by the Federal Reserve shared by Car and Driver, auto loans rejections averaged 14.2 percent in June up from 9.1 percent in February. That’s a staggering increase in just a few months and the highest level since the Fed started collecting the relevant data in 2013. Though the report does showcase that vehicle-related loan rejections were actually a little lower than the 21.8 percent rejection rate average for all U.S. loans. 

Still, it’s hard to turn the above into good news for regular Americans. 

From Car and Driver

Would-be-borrowers saw their applications for other loan types rejected at an increased rate, too: 21.5 percent of credit card applications were rejected, for example, along with 30.7 percent of credit card limit increase requests, 13.2 percent of mortgages, and 20.8 percent of mortgage refinance applications. The Fed said that the overall rejection rate for all credit applicants was almost 22 percent in June, the highest level in five years. The Fed said all age groups saw an increase in rejections, but the highest rejection rates were among people with sub-680 credit scores.
The reasons for the increased rejections can be found in the broader economy, especially the inflation of the last few years and the fact that rising interest rates have increased the amount of debt people have. Lenders are worried about borrowers being unable to pay, with good reason. Analysts at Cox Automotive noted last month that "auto loan performance resumed deteriorating in May as delinquencies and defaults both increased for the first time in three months."

Considering the number of studies we’ve seen over the years stipulating that the average household can no longer afford a new vehicle, sizable loans are the only way many can procure a fresh automobile. But lenders won’t be happy if there’s a chance they won’t be able to pay it off with interest and they’re buckling down. 

We can blame automakers for prioritizing high-margin vehicles, regulators for ensuring tech and safety inclusions that have made manufacturing more expensive, the government for creating inflation through excessive spending, or consumers for going along with massive loan terms and all of the above. 

While things may eventually improve, auto-loan delinquencies remain extremely high and are likely to keep lenders from opening the vault. Cox said delinquencies are the highest recorded since 2006 — right before we had a massive recession and some automakers started seeking bailout funding. 

Everyone is assuming that things will get worse before they get better. Over the next twelve months, the Federal Reserve is estimating applicants seeking an auto loan will see rejection rates nearing 30 percent. That won’t be quite as bad as those seeking credit card applicants, increased spending limits or mortgages. But that’s going to be of little comfort as the broader economy seems poised for a downturn of epic proportions and incomes fail to achieve parity with annual inflation rates.

[Image: Pathdoc/Shutterstock]

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  • Olddavid Olddavid on Aug 09, 2023

    The first job I had for the auto finance groups was as an inventory checker. I literally checked the serial number of every floored vehicle. At my first assignment the bank next door was advertising 14.5% CD's. As I look at these comments I am amazed at how little we learned from going through this very situation 45 years ago. Most states had usury laws capping interest at 10-15%, while the prime was 19-21%. Yet most of the large dealer groups survived and grew in this challenging environment. I know how this training prepared me for bigger and better things since any fiscal achievement here was tenfold in better days. Maybe it was the optimism of being young but I felt like we were all trying to better ourselves together so we could all lift the standards for our children higher. I don't know the same thing that you don't know.....

  • 28-Cars-Later 28-Cars-Later on Aug 09, 2023

    "Most states had usury laws capping interest at 10-15%, while the prime was 19-21%"

    Oh those are long gone.

    Meanwhile in the PRK...

    "What should shock Californians is a loophole in the state Constitution specifying that the usury law’s 10% rate cap doesn’t apply to “any bank created and operating under and pursuant to any laws of this state or of the United States of America.”

    In practice, according to the California attorney general’s office, this means any loan from a bank, savings and loan, credit union, finance corporation or even a pawnbroker is exempt from the usury law.

    Which is to say, most companies licensed to lend money to consumers in California aren’t covered by the primary state law that specifically addresses the lending of money to consumers in California."




    "“Californians had strong consumer protections in place decades ago — specifically, a constitutional usury cap of 10%,” said Graciela Aponte-Diaz, director of federal campaigns for the Center for Responsible Lending.

    “Through a process of deregulation in the 1980s and ’90s, the cap no longer applies to regulated financial institutions,” she told me. “Since then, predatory lending has proliferated in the state.”"

    Funny how Kalifornia's consumer protections don't apply here, isn't it? Almost as if the "Democratic" Party is working for the same interests as the Evil Republicans(tm).

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