Auto Loan Rate Trends

Shifts in Auto Loan Trends

In the world of auto loans, things were a bit of a roller coaster for March and April this year. A report from Cox Automotive showed the loan approval scene got tougher in April after seeing some improvement in March. According to a Kelley Blue Book report, there was a pretty sharp 2.8% drop in subprime loan approvals, particularly those with credit scores of 620 or below. It seems that lenders aren’t too keen on extending long-term loans, but for those that do, the typical max term is about 96 months, though some cut it short at 84. It’s also interesting that borrowers who owe more than their car’s worth—often called “underwater”—bumped up by about 0.1% in April.

Importance of Credit Score

The gravity of maintaining a high credit score cannot be overstated. As of the second quarter in 2024, borrowers with super prime credit scooped up pretty favorable 5.25% rates, while those down in the trenches of the deep subprime range faced a scary 15.77% rate, according to Experian. Folks with new car loans showed an average credit score of 755, bagging a 6.35% rate over around 68 months, while used car borrowers weren’t as lucky, scoring an average 11.62% rate for scores averaging at 691.

Comparing Rates

Data from myAutoloan.com adds another layer to this story with borrowers having scores between 451 and 599 facing a staggering 18.93% and 19.18% rate for new and used cars, respectively. Meanwhile, those who managed a score of 750 or above found rates dropping to 11.38% and 11.63% for new and used vehicles. Clearly, the credit score is king in securing a viable car loan.

Looking Ahead

Adding to the drama, external factors like tariffs and economic uncertainty are making folks with lower credit scores look riskier to lenders. The slight uptick in underwater loan situations reflects the problematic nature of longer loan terms with higher interest. Despite a few federal rate cuts, rates remain notably high, keeping auto loans on the expensive side of things.

For buyers, it’s wise to shop around for rates or perhaps hold out a bit to see if the market shifts in a more favorable direction. In legislative news, a proposition in the U.S. Congress is up for discussion that might let car buyers write off up to $2,500 in auto loan interest on their taxes if their vehicle is put together domestically. This could be a game-changer if passed, applying for vehicles bought from 2025 onwards.