You might find it hard to finance a car if you’re trying to buy one soon.
- Even if you don’t buy the most expensive car, you might have trouble getting the financing you need.
- Higher interest rates, car prices, and lending standards have made it harder for people to get car loans.
- Raising your credit score and down payment before you shop can help you qualify for a car loan.
If you need to replace your car or buy your first car, you may not have enough money in your savings account to purchase a vehicle outright. And that’s understandable, especially with car prices being so high these days. But unfortunately, you may find that getting a car loan is easier said than done.
Auto loans were harder to get in July than in June, according to Dealertrack’s Credit Availability Index. And auto loans have been harder to come by this year since approvals peaked in April. Here are some of the reasons for this trend.
1. Credit has tightened
Whether you get a mortgage, personal loan, or car loan, lenders can choose to tighten their standards and requirements as they see fit. These days, many experts are warning of an impending economic recession, so some auto lenders might be more inclined to proceed with caution. After all, the last thing a lender wants is to make a loan that a borrower can’t keep up with.
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2. Interest rates are higher
The Federal Reserve has implemented interest rate hikes in an effort to slow the pace of inflation. As such, borrowing has become more expensive for consumers – not just in the area of auto loans, but also for other lending products, like home equity loans and HELOCs.
Since the interest rates are higher for car loans, they make these loans more expensive. And that, in turn, pushes some consumers into the category of those who can’t afford the monthly payments that come with a car loan.
3. Higher car prices lead to higher down payment requirements
Vehicle prices have skyrocketed this year due to limited supply resulting from a major chip shortage.
That’s hard enough on its own, and it also puts pressure on the used car market, making it harder for consumers who need a car to close a deal.
But as car prices are higher, lenders require larger down payments. And some people can’t afford to make them. If you’re in this boat, you might struggle to get a car loan.
How to increase your chances of getting a car loan
Although it’s getting harder and harder to get auto loans, that doesn’t mean all is lost. In fact, there are steps you can take to increase your chances of success.
First, work on increasing your credit score. The higher this number, the less you present yourself as a risky borrower.
Then plan to shop. Not only could this help you find a lender who says yes, but it could also lead to a lower interest rate on your car loan.
Finally, do your part to save a decent down payment for a car. A side hustle might be your ticket to ticking that box.
Car loans have been more difficult to obtain, but some borrowers are get them. And with the right strategy, you could be one of them.
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