Auto Loan Rejection Rate Nearly Doubles in 2019: Fed Survey

U.S. households’ credit experiences and expectations remained fairly stable in 2019 compared to 2018, but the rejection rate for auto loans nearly doubled from 4.5% in October 2018 to 8.1% in October 2019, according to the Survey of Consumer Expectations Credit Access Survey released Dec. 16 by the Federal Reserve Bank of New York.

The overall reported rejection rate for auto loans increased from 6.1% on average in 2018 to 7.1% in 2019, according to the survey, which provides information on consumers’ experiences with, and expectations about, credit demand and credit access.

What’s more, application rates for auto loans declined by 2.9% to 12.6% on average in 2019 from 2018. This decline was driven by respondents with credit scores lower than 680, according to the survey.

However, the reported rejection rates for credit cards, mortgages and mortgage refinance applications declined compared to 2018, while the reported rejection rate for credit card limit increases remained steady in 2019, increasing only by 0.1% to 30.8% from last year’s average.

Application rates for mortgage refinancing also declined slightly from 8.3% on average in 2018 to 8.0% in 2019.

In contrast to mortgage refinancing application rates, mortgage loan application rates rose over the past 12 months from 6.7% in October 2018 to 8.4% in October 2019. Overall, mortgage loan application rates increased from an average of 7.1% in 2018 to 7.9% in 2019.

The application rate for credit cards remained stable on average in 2019 compared to last year, at 27.5%, while the application rates for credit card limit increases rose by 0.6% in 2019 to an average of 12.7%, the fed survey reported.

The share of respondents who were too discouraged to apply for credit over the past 12 months despite needing it, was 6.4% on average in 2019, just slightly above the 2018 average of 6.3%.

The proportion of respondents who applied and were granted credit over the last 12 months increased 1.2% to 37.7% on average in 2019, while the proportion of respondents who applied for credit and were rejected declined from 9.1% on average in 2018 to 8% in 2019.

Since June 2019, this reading has held steady at 8.3%, the Fed survey said.

The proportion of respondents who reported they are likely to apply for at least one type of credit over the next 12 months increased from 25.6% in 2018 to 26.8% in 2019. In fact, the average likelihood of applying for each specific kind of credit over the next 12 months increased this year compared to last year.

The survey also provided mixed evidence on what it called the subjective financial fragility of U.S. households.

While the average probability of needing $2,000 for an unexpected expense in the next month increased from an average of 32.9% in 2018 to 33.6% in 2019, the average probability of being able to come up with $2,000 if an unexpected need arose within the next month increased from 68.6% on average in 2018 to 69.8% in 2019.