Ford Authority

Auto Loan Rejection Rate Hits New High As Lenders Clamp Down

Following years of low interest rates, the Federal Reserve began raising them months ago as a way to quell soaring inflation. On the downside, higher rates make borrowing money to buy things like cars and homes more expensive, though average transaction pricing has declined somewhat through the first half of the year. However, new auto loan rejection rates are also on the rise – hitting a new all-time high in June, in fact – meaning that it’s getting more difficult to secure financing, according to Automotive News.

According to a new Federal Reserve study, the sheer number of applicants that were denied a new auto loan over the past 12 months came in at 14.2 percent, which is not only a new record, but also a sharp increase from February, when the rejection rate was 9.1 percent. Experts blame this jump on rising interest rates, as one might imagine, but also point to the fact that lenders are clearly concerned about delinquencies, particularly as the majority of these rejections applied to customers with credit scores of less than 680.

Interestingly, this didn’t come as much of a surprise to many applicants, as one-third of them admitted that they weren’t shocked by their auto loan rejection – also a new all-time high. A total of 39 percent of lenders surveyed by the Fed said that they expect to tighten their lending standards by the end of the year, while 29 percent have already done so.

Meanwhile, the number of new credit applications reached its lowest level since October 2020, all while the probability of rejections grew across the board – with autos coming in at 30.7 percent – yet another new record, something that can be attributed to stricter underwriting standards and more stringent payment-to-income limits.

We’ll have more insights like this to share soon, so be sure and subscribe to Ford Authority for non-stop Ford news coverage.

Brett's lost track of all the Fords he's owned over the years and how much he's spent modifying them, but his current money pits include an S550 Mustang and 13th gen F-150.

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  1. steve

    the people that are getting denied on loans, almost always know they really can’t afford it, but feel they are entitled to a new truck or car. they go to the dealer saying ok ” I can afford 700″. a month , and they get all caught up in the moment , the dealer see’s the gleam in there eye’s and they get hammered into that vehicle for 975 a month. I have worked hard, I can pay 100K for a truck, and I write a check for it, but north of 50% can not afford these 100K trucks and at some point there will be a correction and these 100K trucks will be worth 50K , then you have loans that are upside down 40% – 60% and they end up out of warantee and people dump them to the bank, and 6 months later they are right back at the dealership and they do it all over again. its sad.

  2. David Dickinson II

    IMHO more people are being rejected because their payments for everything are going up, especially credit cards they are using for day-to-day stuff, and therefore they can’t clear their debt to income ratios for auto payments (that are also going up due to higher interest rates).

    But this puts Ford and others in a bind. They want people with better credit but, at the same time, inventories are rising and they need to move product. Cox says MachE has 116 days of supply as demand is cooling. Ouch. Do you keep turning credit risks away on products that are collecting dust, or do you move product and kick the credit problem down the road?

    1. Mf

      This only applies to FMC, there are a LOT of other lenders that Ford has no control over.

  3. Tom

    Supposedly the average credit score in the US is around 700. It seems like if they want to sell cars, depending on the top scores won’t cut it.

    1. steve

      yea covid caused scores to rise, but when you make 75K a year , and your bills are 65K of that amount, your A@@ is broke. you should not try to be buying nothing new.

  4. Mf

    It’s almost like the banks know that the vehicles they’re financing aren’t worth near what they’re lending out for them, and they expect their values to drop a lot…

    That aside, this only makes sense. The cost of everything is going up and salaries aren’t going up to match. When people have less and less disposable income and the price of vehicles keeps going up, you’re going to have less people that can afford them.


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