Fewer subprime borrowers got approved for auto loans in April

Auto credit access dipped in April compared to March—with lenders being a lot more apprehensive about extending credit to high-risk borrowers. 

The details: Cox Automotive’s All-Loans Index dropped from 96.3% in March to 95.7% in April, representing a month-to-month decrease of 0.7%. The decrease was primarily driven by lower subprime share, an increase in longer term loans, and an increase in negative equity. 

• The subprime share of loans—which represent loans given to borrowers with lower credit scores—slid by 280 basis points (BPs) in April.

• According to Cox’s findings, the share of loans with terms greater than 72 months (usually accompanied by higher overall interest costs over the length of the loan) increased by 130 BPs in April. 

• And negative equity share—representing the proportion of borrowers who owe more on their loans than the value of their cars—increased by 10 base points in April. 

The good news? The approval rate for auto loans climbed by 20 BPs last month, reflecting a more favorable lending environment at a high level. The average down payment percentage required for loans remained stable at 14.7% compared to March. 

Digging deeper: Credit access tightened across all sales channels in April compared to March, while the different types of lenders saw mixed results month over month.

• New auto loans experienced the most credit access tightening in March—while the independent category remained flat.

• Among lender types, captives showed the most tightening—whereas auto-financed companies showed the most loosening of credit access.   

Between the lines: Despite the March to April dip, auto credit access increased 0.7% year over year, with credit access loosening the most over the period for non-captive new-vehicle sales and the least for independent used sales. 

Bottom line: The month of May could be a critical crossroad for gauging credit access as lenders prepare to deal with the impact of auto tariffs on vehicle pricing and additional economic strains for borrowers.

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