Apply for a car loan? It’s complicated right now

Auto credit rose for a second consecutive month in October, but the news was not all good news for borrowers.

The Dealertrack Credit Availability Index, a product of Kelley Blue Book’s parent company, Cox Automotive, measures how difficult it is to qualify for all types of auto loans. The index rose 0.2% in October, meaning auto credit was slightly easier to obtain than in September.

Access to credit eased for all types of lenders in October. Banks eased the most, while auto-focused finance companies eased the least. Lenders also issued more subprime loans than they had in September.

But more applicants were turned down. The approval rate fell to its lowest level since 2020, and the share of longer-term loans also fell.

Longer loan terms may give buyers a lower payment, but the result will keep them in debt for an extended period. It will also put them in debt on an aging car with less value.

Lenders also demanded larger down payments in October than the previous month.

The Federal Reserve decreed an interest rate hike at the beginning of November which could further shake up the auto credit market. Cox Automotive senior economist Jonathan Smoke warned that repeated interest rates increase the risk of making new cars something only the wealthy can afford.

Consumers have yet to get the message. The Conference Board’s Consumer Confidence Index survey shows the highest number of Americans planning to buy a new vehicle in the next six months since July 2020.

But they’ll need a higher down payment, higher monthly payments, and a higher credit score to do so.

Morning Consult’s daily consumer sentiment index fell 2.7% in October as underlying measures of current conditions and future expectations declined. Stock market volatility and midterm election rhetoric likely weighed on the declines.

About Sharon Joseph

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