- Lenders approved 72.4% of car loan applications in May.
- It’s easier to qualify than normal, but there are warning signs in the data – more extremely long loans, and more buyers folding old debt into new loans.
Americans had an easier time qualifying for a new car loan in May than in April. Lenders approved 72.4% of applications, up from 70.6% in April.
The Dealertrack Credit Availability Index tracks how difficult it is to qualify for all types of car loans. It increased in May, meaning that borrowers had an easier time qualifying for car loans last month. Kelley Blue Book’s parent company, Cox Automotive, publishes the index.
The index rose to 103.7 last month – its highest point since April 2022.
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There are, however, a few cautionary signs in the data. Thirty percent of new loans had terms longer than 72 months – a measure that can lower monthly payments but keeps consumers in debt for longer and costs more over the life of the loan.
Fully 57.3% of new loans included negative equity from an old loan. That’s down from 58.5% in April, but means most borrowers no longer pay off their car before they part with it.
Lenders typically asked for an average down payment of 13.5%.
Jonathan Gregory, senior director of economic and industry insights for Cox Automotive, cautions, “The combination of longer terms, lower down payments, and more negative equity carried forward increases total loan cost and risk exposure over the life of the financing, regardless of how manageable the monthly payment appears. Consumers should carefully consider the full terms of any financing offer, particularly total loan length and overall cost.”
The share of subprime loans (those issued to buyers with credit scores of 620 or under) fell to 16.7%.