WASHINGTON–The race to purchase cars ahead of any tariff-related price increases hasn’t mean those same would-be buyers have been able to find financing, according to a new report.
Some of the nation’s largest lenders, including Wels Fargo and Capital One, have tightened underwriting standards over the past few year, while others, including Ally Financial, have made it harder to get loans over the last few months, the Wall Street Journal reported.
The report noted that Ally Financial received a record 3.8 million loan applications in Q1 of this year, but it approved fewer borrowers than the prior quarter, while Credit Acceptance, which offers financing to borrowers with lower credit scores, said it is tightening standards after seeing indications that newer borrowers are struggling to keep up with payments.
Capital One reported that than half of the bank’s auto loans went to borrowers in the highest credit tier last quarter, the Journal reported.
“We are still leaning in, but it’s with a very watchful eye with respect to this uncertain economy,” Capital One Chief Executive Richard Fairbank said on a call with analysts last week, according to the Journal.
More Rejections
Buyers are being increasingly rejected for certain loans at the same time manufacturers are reporting big jumps in sales, including Ford, which said its auto sales rose 16% in April from a year earlier.
The Journal cited Fed data showing 38% of auto loans were extended to borrowers with credit scores of 760 or higher in the fourth quarter of 2024, versus 33% three years earlier.
The average APR on new car loans was 7.2% in April, up from 5.4% at the end of 2019, the report stated.
Co-Signers Needed
“Those with lower scores or first-time borrowers should consider lining up a cosigner or loan from a credit union before walking into a dealership,” the Journal added.
As credit unions know, and as the report reminded, higher vehicle values make financing a riskier business for lenders because inflated prices mean borrowers end up with larger loans that take longer to pay off, while lenders run the risk of larger losses.