Getting a car loan may finally be getting a little easier, and for the first time in nearly four years, that’s welcome news for car shoppers who have been battered by high interest rates, sky-high vehicle prices, and monthly payments that looked more like mortgage bills.
According to a recent report from Kelley Blue Book, lenders approved more car loans in March than they have in years, especially for buyers with less-than-perfect credit. That’s a significant shift after a long stretch where banks and finance companies tightened lending standards so much that even consumers with decent credit scores sometimes struggled to get approved.
Kelley Blue Book reported that lenders approved 70.8% of applicants in March, an increase from February and one of the strongest approval rates seen since before the pandemic-era craziness turned the auto market upside down.
That doesn’t mean banks suddenly woke up feeling generous. It means the auto market is changing.
For the past several years, lenders had every reason to be cautious. Vehicle prices exploded during the inventory shortages of 2021 and 2022. At the same time, interest rates climbed as the Federal Reserve tried to cool inflation. The result was brutal monthly payments, longer loan terms, and an increasing number of buyers getting upside down in their loans before they even made the third payment.
Now, inventories are improving at many dealerships, incentives are climbing again, and automakers want to move metal. That means lenders are loosening up slightly to help keep sales flowing.
Subprime lending also increased in March. Kelley Blue Book says loans to higher-risk borrowers made up 19.5% of all auto loans, the highest level since March 2020.
That’s important because subprime buyers are often the first group cut off when lending tightens. Their return to the market is a signal that finance companies are becoming more comfortable taking on risk again.
But before anyone starts celebrating with a trip to the dealership and a “Sign and Drive” balloon tied to the mirror, let’s keep this in perspective.
Interest rates are still high compared to what buyers got used to before COVID. Kelley Blue Book recently noted that the Federal Reserve held rates steady again this month, meaning there’s no immediate relief coming from Washington.
Meanwhile, the average new vehicle transaction price remains near $50,000. Cox Automotive says the average new vehicle sold in February went for $49,353, up 3.4% year over year.
That means even if lenders are approving more buyers, the loans themselves are still enormous.
And that’s where consumers need to stay disciplined.
Long loan terms continue to dominate the market. Industry analysts say the average new-car loan now stretches nearly 69 months, with many buyers going 72 months or even 84 months just to make payments manageable.
I’ve said this for years on the radio: don’t shop for the payment. Shop for the total price.
A seven-year loan may get the monthly number where you want it, but you’re usually paying far more interest over time, and you run a much greater risk of owing more than the vehicle is worth. That’s especially dangerous if you trade often or if the vehicle suffers major depreciation early on.
The good news is there are still some attractive factory-backed financing offers out there for qualified buyers. Lots of new vehicles are offering 0% financing, including certain models from Ford, Nissan, Hyundai, Chevrolet, Jeep, and GMC.
If you’ve got strong credit, now is the time to shop aggressively and compare lenders before you ever step foot in a dealership. Your bank or credit union may beat the dealer’s financing, but sometimes the factory incentives offered through captive finance companies are hard to top.
The bottom line is this: getting approved for a car loan appears to be getting easier again, and that’s good news for consumers. But “easier” does not mean “cheap.”
Cars are still expensive. Interest rates are still elevated. And signing paperwork with a monthly payment that makes your stomach hurt is still a bad idea, no matter how shiny the wheels are.
The smartest buyers are the ones who walk into a dealership knowing their credit score, their budget, and exactly how much car they can truly afford. The rest are usually the people calling my radio show six months later asking how to get out of a bad loan.
Photo: Sergii Bob/Shutterstock.com.