The Dealertrack Credit Availability Index marked the fourth consecutive month of auto credit decline, with all lender types and channels tightening credit access. The All-Loans Index was 92.9 in July, down 1.0% from a downwardly revised June reading and down 1.5% year over year.

The decrease in the index is the result of falling approval rates, reduced subprime share, and increased yield spreads, which make auto credit access more challenging for consumers. The percentage of down payments and term lengths remained unchanged month over month. However, the number of loans with negative equity saw a slight increase and was the only element that positively impacted consumer credit access.

July saw a tightening of credit across all sales channels. While new loans that weren’t financed through a captive lender faced the least tightening, used loans financed through franchised dealers saw the most tightening. Credit access was tighter in July than it was a year ago across all channels. Used loans through independent dealers showed the least tightening, and certified pre-owned loans saw the most tightening conditions compared to last year.

All lender types reported a decline in credit availability in July. Banks tightened their credit for the fifth consecutive month, the most significant tightening amongst all lender types since June. Meanwhile, auto-focused finance companies tightened the least and have widened compared to pre-pandemic levels. On a year-over-year basis, the same is true: auto-focused finance companies tightened the least, while banks saw the most tightening.

The average yield spread on auto loans increased by 9 Basis Points (BPs) in July, making rates less attractive to consumers compared to bond yields. The average auto loan rate decreased by 7 BPs in July compared to June, while the 5-year U.S. Treasury decreased by 16 BPs, resulting in a larger average observed yield spread. It is worth noting that we have seen average auto loan rates decrease by 80 BPs since February of this year. Meanwhile, approval rates decreased by 39 BPs in July, representing a 4-percentage point year-over-year decline.

The share of loans with terms exceeding 72 months remained steady for the fourth month. However, the number of loans with negative equity increased by 20 BPs in July, following a decrease in June. The down payment percentage was flat from June to July after gradually decreasing since the beginning of the year. However, it has increased by 30 basis points compared to a year ago.

Each Dealertrack Auto Credit 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.