Finding Car Deals Becomes More Convenient, Yet Lenders Restrict Loan Conditions
Spring has arrived, bringing with it an abundance of new car deals and enticing offers from manufacturers. However, for some potential buyers, obtaining affordable car loans has become increasingly challenging. Banks and dealerships are facing a rising number of delinquencies, leading them to tighten the terms of car loans. While new cars are more readily available this season, lenders are making it harder for certain individuals to secure affordable loans.
A recent report from Dealertrack, a Cox Automotive service that tracks credit availability, revealed that access to auto loans for both new and used cars was generally worse in January compared to December, and even down year over year. Factors such as loan approvals, terms, and down payments were taken into account when assessing credit availability. The impact of these circumstances was observed across banks, credit unions, and dealerships.
According to Sean Tucker, a senior editor at Kelley Blue Book, Cox’s car research and sales website, credit access is tightening across all channels. This means that even buyers with decent credit scores may face difficulties when seeking financing. Subprime borrowers, who have the lowest credit scores, are particularly affected by these changes. The share of subprime new-car loans has plummeted to approximately 6 percent, which is roughly half of what it was before the pandemic struck.
Lenders are now prioritizing borrowers with strong credit profiles. Experian Automotive, which tracks car financing, reported that the average credit score for new-car shoppers taking out a loan or lease increased to 743 at the end of 2023, up from 739 the previous year. For used cars, the average score rose from 681 to 684. These figures indicate that lenders are more attracted to individuals with higher credit scores as they pose a lower risk.
It is important to note that these figures are based on Experian’s VantageScore 3.0 scores, which range from 300 to 850. Generally, scores of 661 and above are considered eligible for favorable loan terms. Borrowers with credit scores below this threshold may find it increasingly challenging to secure loans on favorable terms.
While finding car deals has become more convenient this spring, the tightening loan conditions pose a significant hurdle for many potential buyers. The influx of new cars on the market, coupled with enticing offers from manufacturers, may seem like a golden opportunity for those in need of a new vehicle. However, it is essential to understand that lenders are becoming more cautious due to rising delinquencies.
For now, borrowers with strong credit scores have the upper hand when it comes to obtaining affordable car loans. This trend suggests that maintaining a good credit profile is vital for those looking to secure favorable financing options. As the lending landscape evolves, it is crucial for potential buyers to stay informed and prepared to navigate the changing conditions in order to find the best car deals available.
