Auto financing eases in Oct. as lenders get more aggressive

Auto credit availability, a measure of how easy it is for consumers to get financing for car purchases, improved in Oct. for the second month in a row. 

The details: Lenders have begun easing up after tightening all summer, though credit access overall is still tighter than it was a year ago. Credit unions loosened the most last month and auto-focused finance companies the least. Notably, auto-focused finance companies are the only ones offering more credit access now than they did before the pandemic.

• Yet, the average approval rate is still down 2.6% year-over-year despite increasing slightly month-over-month. Subprime loans saw a meaningful boost in approval rates, increasing 1.2% year-over-year.

• Certified pre-owned loans saw the biggest loosening, while credit for used car loans eased the least. 

• Consumers financing non-captive new loans and used loans through independent dealers now have better credit access than they did before the pandemic.

What’s more: Other factors moved in favor of consumers this month. Yield spreads tightened, indicating that the market is less worried about risk. When spreads widen, the market demands a higher premium for lower-tier credit quality. Term lengths also shrank, down payments held steady, negative equity decreased, and the average auto loan rates have decreased by 124 basis-points since March.

Why it matters: So far in Nov., some dealers have told CDG News that auto lenders have gotten a lot more aggressive. 

• The Chief Operating Officer of a 40+ store dealer group was approached by three separate lenders, all asking him to send more applications for the holiday season — even ones that don’t meet typical lending standards. 

• And a Toyota dealer in the Southeast told CDG that Wells Fargo is starting to approve 84-month terms, 135% loan-to-value (LTV) ratios, and subprime credit scores down to 540 — a total 180° from last year.

Bottom line: Lenders make their money by staying competitive. Banks, credit unions, and finance companies are loosening up to compete with automaker captives’ low annual percentage rate (APR) offers, which are likely to drop more immediately after the Fed’s rate cuts. For dealers, this means more approvals, more deals, and more flexibility to get buyers in the door.

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