Consumers' access to credit is getting easier — except for those financing vehicles.
The Federal Reserve Bank of New York on Monday reported that rejection rates on vehicle financing are on the rise, which some economists think could indicate access to auto loans is tightening as some lenders raise standards for certain borrowers.
Auto loan rejection rates rose to 8.1 percent in October, from 4.5 percent in October 2018, the New York Fed said in its latest survey of consumer credit, which is conducted three times a year.
Automotive loans were the only credit product that saw a rise in rejection rates over the course of the three surveys. The New York Fed noted that reported rejection rates for credit cards, mortgages and mortgage refinance applications in that period all declined from 2018. Comparatively, rejection rates for auto loans bumped up 1 percentage point to 7.1 percent.
Tighter credit could be one possible reason for the higher rejection rates.
Even with declining interest rates this year, lenders are charging higher interest on automotive financing for customers in lower credit tiers, says Cox Automotive.
The Federal Reserve cut the benchmark interest rate three times in 2019. Beginning at a range of 2.25 to 2.5 percent, the official short-term policy rate fell a cumulative 0.75 percentage point since January.
Relief from lower interest rates has been felt primarily by customers with high credit scores. According to data from Dealertrack, a Cox subsidiary, the average interest rate on new-vehicle loans charged for superprime borrowers, or customers with FICO scores above 760, declined 70 basis points from January to November. But for subprime borrowers, it increased more than 2 percentage points.
Meanwhile, fewer consumers applied for auto loans this year. Application rates dipped 2.9 percentage points to 12.6 percent on average in 2019, the New York Fed said.