Qualifying for a new car loan eased for Americans in the previous month. Auto sales are accelerating as car tariffs take effect and Americans hasten to buy the remaining cars imported at pre-tariff prices. Finance companies gave many the go-ahead in March.
The Dealertrack Credit Availability Index tracks how difficult it is to qualify for all types of car loans. In March, conditions moved in borrowers’ favor. Kelley Blue Book parent company, Cox Automotive, publishes the index. Last month, it reached its highest level since December 2022.
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Lenders approved more loans and more subprime loans (for borrowers with credit scores of 620 or lower) than they did the month before.
However, though the approval rate increased, borrowing costs went up. Lenders asked for higher down payments and extended fewer loans with terms of 72 months or longer. Shorter loans have higher monthly payments.
Lenders were more willing to accept negative equity. While that’s good for some borrowers, it can signify financial stress. Higher negative equity shares can lead to increased default rates, as borrowers may struggle to keep up with payments on loans that exceed the value of their assets.
The good news may not last. At its March meeting, the Federal Reserve declined to lower interest rates. As recently as late last year, the Fed projected many rate cuts in 2025. In the early days of a simmering trade war, the central bank has frozen rates instead.