Shoppers looking to borrow money to buy a car face a cloudy picture. Credit unions and auto-focused finance companies (those that focus on car loans) were looser with their credit standards in April. Banks and the captive lenders at car dealerships were tighter with their standards.
The banking industry is trying to determine how to react to the Federal Reserve’s continued decisions not to lower interest rates. The Fed started the year projecting that it would lower rates several times. But it hasn’t done so into May, and there are hints that inflation remains too high to make a cut realistic.
That leaves borrowers trying to read tea leaves.
Credit availability factors mostly moved against consumers in April. Both approval rates and subprime share decreased. These moves reduced credit access for consumers. Lenders are more reluctant to offer longer loans – a move that can bring monthly costs down. The share of loans with terms 72 months or longer is down 1% year-over-year.
But lenders asked for smaller downpayments and were more willing to fold negative equity into a new loan, improvements for consumers.
Prices for new and used cars have fallen through most of 2024. Combined with the possibility that the Fed could cut interest rates, these declines might cause shoppers to wait as long as possible to buy. Economists fear that outcome, which can become a self-reinforcing “deflationary spiral.”
However, waiting may remain the right move for individuals unsure whether to buy a new car.
The Conference Board Consumer Confidence Index declined 0.1% in April, as views of the present situation improved, but views of the future declined. Consumer confidence was up 0.7% year over year. Plans to purchase a vehicle in the next six months increased slightly but were flat year over year.
