More Borrowers Are Being Rejected For Auto Loans

American consumers might have their pick of the job in today’s robust job market, but that doesn’t mean everyone is funded for a car.

A Federal Reserve Bank of New York consumer credit survey released on Monday showed an increase in the auto loan rejection rate, to 8.1% in October from 4.5% in the same month last year.

And for the full year, the average auto loan rejection rate was 7.1%, down from 6.1% for 2018, although applicants reported fewer rejections in other parts of the record debt market. consumption of $14 trillion for the same 12 month period.

“Reported rejection rates for credit cards, mortgages and mortgage refinance applications have all declined from 2018,” according to the Fed’s overview of its annual survey, which covers consumer experiences during demand for car loans, credit cards, credit card balance increases, mortgages and mortgage refinancing.

November saw a surprise drop in the US unemployment rate to 3.5% from 3.6%, matching a 50-year low and fueling optimism that a strong US consumer can help sustain the economy. economy past its 11th year of record expansion.

Still, a decade of easy auto credit has fueled worries that American households could be on the brink of another funding bubble, just years after many borrowers emerged from the worst foreclosure slump since the Great Depression.

Last month, a Wall Street Journal report highlighted how a 40-year-old electrician took out a $45,000 loan on a $27,000 Jeep Cherokee, while other lenders also relaxed their underwriting standards.

But as consumer debt rose 4.8% in October from a year earlier, analysts at BofA Global Research see a more stable picture forming next year.

“We believe consumer debt will continue to grow, but the pace will continue to moderate, with expectations of slower growth in consumer spending (+2.3% YoY in 2020) and relatively stable lending standards “, wrote a team of analysts, led by Chris Flanagan. , in a weekly note to clients.

This contrasts with the U.S. housing market, where Moody’s recently said it expects competition among lenders to drive down standards for homebuyers with patchy credit.

To verify: Lending standards will drop for homeowners with patchy credit, warns Moody’s in its 2020 outlook

On the eve of the 2008 financial crisis, toxic subprime mortgages were bundled by banks into mortgage bond deals and sold to investors without government support.

But this graph from BofA Global Research shows that the US government and banks are the biggest holders of consumer debt in this credit cycle:

US consumer debt holders

BofA Global Search