Auto Credit Availability Improves in January as Rates Start Moving Higher

Access to auto credit expanded in January according to the Dealertrack Credit Availability Index for all types of auto loans. The All Loans Index increased 0.4% to 102.0 in January, reflecting that auto credit was easier to get in the month compared to December. Access was looser by 7.6% year over year and compared to February 2020, access was looser by 2.9%. The index was last higher in November 2018. 

A key reason for the improvement in credit availability in January was that the average yield spread on auto loans narrowed to the lowest level since January 2018. Even though the average auto loan saw a higher rate in January compared to December, bond yields increased by a larger amount, resulting in the lower observed yield spreads.

All loan types saw credit easing in January with certified pre-owned (CPO) loans and used loans through independent dealers easing the most. On a year-over-year basis, all loan types were easier to get with used CPO loans having loosened the most.

Credit access also improved across lender type in January with auto-focused finance companies having loosened the most. On a year-over-year basis, all lenders had looser standards with auto-focused finance companies having loosened the most.

Each Dealertrack Credit Availability Index tracks shifts in loan approval rates, subprime share, yield spreads and loan details including term length, negative equity, and down payments. The index is baselined to January 2019 to provide a view of how credit access shifts over time. Across all auto lending in January, yield spreads narrowed, and terms lengthened, and the moves in those factors made credit more accessible. However, down payments increased, the approval rate declined, and the negative equity share declined, and the moves in those factors made credit less accessible. The subprime share was unchanged in January from December.

Consumer sentiment fell in January. Consumer Confidence according to the Conference Board declined 1.2% in January, erasing some of December’s 2.9% gain. The increase left confidence down 14.2% compared to February 2020. The underlying measures of present situation and future expectations moved in opposite directions as present situation declined but future expectations improved. Plans to purchase a vehicle in the next six months increased to the highest level in six months and was higher than a year ago. Plans to purchase a home also improved to a record level. The sentiment index from the University of Michigan declined 4.8% in January as both current conditions and expectations declined. The Michigan reading was the lowest since November 2011. The Morning Consult daily index of consumer sentiment declined 2.1% in January, leaving it down 3.3% year over year and down 24.1% from Feb. 29, 2020.

The Dealertrack Credit Availability Index is a monthly index based on Dealertrack credit application data and will indicate whether access to auto loan credit is improving or worsening. The index will be published around the 10^th of each month.