Affordability, credit access improve following spring tightening

Vehicle affordability and credit access continued to improve in July as incentives offset elevated interest rates and lenders loosened credit standards following months of tightening. The number of median weeks of income needed to purchase a new vehicle fell to 42.3 in July compared with a revised 42.8 weeks in June and 42.2 weeks in July 2022, according to Cox Automotive ’s Vehicle Affordability Index released Tuesday. Vehicle Affordability Index July 2023 [caption id="attachment_58332470" align="alignnone" width="1920"] Weeks of income needed to purchase a new vehicle | Source: Cox Automotive [/caption] Still, average new-vehicle monthly payments continued to surpass $700 in July and the average interest rate ticked up 2 basis points (bps) to 9.65%, according to Cox. While interest rates are elevated, they aren’t rising at the same rate as they have been, potentially making it more attractive for consumers who had been waiting to purchase a vehicle, Jeremy Robb , senior director of economic and industry insights at Cox Auto, told Auto Finance News . Interest rates have been “plateauing; they're not necessarily moving down, but not necessarily moving up a whole lot either,” he said. “Consumers have been dealing with these high rates for well over a year now. Some of those consumers have to go make a purchase.” Credit access loosens Credit availability also improved in July for the second consecutive month. The Dealertrack Credit Availability Index increased 0.2% sequentially to 97.4 — the highest reading since March — but remained down 5.2% year over year, indicating auto loan credit was easier to access compared with April, May and June but access remained tighter compared with July 2022 . The index tracks shifts in approval rates, loan details such as term length, subprime share and yield spreads baselined to January 2019 to show whether credit access has improved over time. Dealertrack Credit Availability Index July 2023 [caption id="attachment_58332469" align="alignnone" width="1920"] Source: Cox Automotive[/caption] All lender types except captives loosened credit standards on a sequential basis in July, with auto-focused finance companies loosening standards the most, according to Cox Auto. On a YoY basis, credit unions tightened credit the most while auto finance companies loosened standards. “It was a better month overall than where we were last month and versus the bottom in May across most things we’ve seen for now,” Robb said. Credit access improved the most on used-vehicle loans in July, while all channels saw tighter access on a YoY basis, according to Cox Auto. Credit access by lender type YoY change July 2023 [caption id="attachment_58332471" align="alignnone" width="1090"] Source: Dealertrack, Cox Automotive [/caption] Narrowing yield spreads and higher approval rates contributed to improved credit access, but lengthening terms, declining subprime share and a dip in down payments and negative equity share negatively impacted access during the month, according to Cox Auto. The average auto loan yield spread narrowed by 6 bps sequentially, while the average approval rate increased by 74 bps compared with June but was down 1 bps YoY. Narrowing yield spreads “made automotive loans more attractive for people versus bond yields,” Robb said. The share of loans with terms longer than 72 months fell 40 bps MoM and 130 bps YoY. Subprime share landed at 10.4% in July, a decrease of 10 bps month over month and 110 bps YoY. “There's been a lot of lenders in the marketplace that have pulled back from lending to that most risky portion of the marketplace, and that's been happening for the past year or so,” Robb said. "When they pull back, there's fewer loans for people to go get to purchase a car. One of the reasons defaults and repossessions are down a bit right now is because subprime share is low.” Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with F ord Credit. To learn more about the 2023 event and register, visit autofinance.live/afs/ .

Affordability, credit access improve following spring tightening

Credit availability index rose 0.2% MoM in July

5 questions with … GM Financial Chief Experience Officer Mike Urrutia

Subprime lender SAFCO names CFO, other staff moves …

Related Posts

Flagship Credit sold to investment firm InterVest

10 auto finance executives to watch in 2026

RV dealers say rate cuts needed as cash flow tightens

Subprime lender SAFCO names CFO, other staff moves …

Stay Informed with Our Newsletters

The Roadmap Podcast

SPONSORED

Driving Innovation in Automotive Refunds: How Onbe and Allied Solutions Are Modernizing the Payment Experience

Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix

Enhancing credit approaches to boost conversion and dealer loyalty

Welcome Back!

Retrieve your password