Loan approval rates are dropping for U.S. car buyers, with Gen Z really feeling the pinch when it comes to securing financing for a vehicle.
The details: New data from the Federal Reserve Bank of New York reveals that the number of applicants denied auto loans has more than doubled in recent months, as more consumers struggle with credit challenges.
15.2% of those who applied for auto loans in October 2025 were rejected.
In the second most recent study, released in June 2025, just 6.7% were rejected.
Why it matters: Tighter approval rates shrink the pool of financeable buyers walking into showrooms, especially younger, payment-sensitive shoppers who often drive volume in used and entry-level new segments.
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Between the lines: Credit has been particularly challenging for Gen Z in recent months, due in large part to credit card and student loan delinquency reporting, according to a recent report by FICO.
Gen Z’s average score dropped three points to 676, the largest year-over-year decrease among any age group since 2020.
34% of consumers in the group have open student loans, compared to 17% of the total population.
Gen Z also showed a higher rate of 50+ point score swings than the national average.
Nearly half the group say they relied on credit cards or Buy Now, Pay Later (BNPL) loans (48% each) to make ends meet.
However, the FICO report also reveals that consumers overall are now 19% more likely to pay auto loans than mortgages, placing autos at the top of the payment hierarchy.
What they’re saying: “We’re seeing a reordering of payment priorities, with auto loans now surpassing mortgages at the top and student loans at the bottom,” said Tommy Lee, senior director of Predictive Scores and Analytics at FICO. This shift highlights how consumers are making strategic choices to protect essential assets and manage their financial obligations.”
Tommy Lee
FICO
Bottom line: Auto retailers will have to work harder to turn traffic into deliveries, leaning on stronger lender relationships, creative deal structures, and a sharper focus on affordability to keep units moving. Stores that can align inventory, pricing, and F&I options to a more stretched, credit-constrained customer (especially Gen Z) will be better positioned to protect both volume and front- and back-end gross.
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