- Even if you're not buying the most expensive car, you might have a hard time getting the financing you need.
- Higher interest rates, car prices, and lending standards have made it more difficult for people to get car loans.
- Boosting your credit score and down payment before shopping around can help you qualify for an auto loan.
You might struggle to finance a car if you try to buy one soon.
If you need to replace your car, or buy your first car, you may not have enough money sitting 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 an auto loan is easier said than done.
Auto loans were harder to get in July than in June, according to the Dealertrack Credit Availability Index. And car loans have been harder to get this year since approvals peaked in April. Here are some of the reasons behind that trend.
1. Lending has tightened
Whether you're getting a mortgage, a personal loan, or an auto loan, lenders can opt 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 may be more apt to proceed with caution. After all, the last thing a lender wants is to give out a loan that a borrower won't be able to keep up with.
2. Interest rates are higher
The Federal Reserve has been implementing interest rate hikes in an attempt to slow down the pace of inflation. As such, borrowing has gotten more expensive for consumers -- not just within the realm of auto loans, but also for other loan products, like home equity loans and HELOCs.
Since interest rates are higher for auto loans, they're making those loans more expensive. And that, in turn, is pushing some consumers into the category of not being able to afford the monthly payments that would come with a car loan.
3. Higher car prices are leading to higher down payment requirements
Vehicle prices have soared this year due to limited supply stemming from a major chip shortage.
That's challenging enough in its own right, and it's also been putting pressure on the used car market, making it harder for consumers needing a car to snag a deal.
But because car prices are higher, lenders are requiring larger down payments. And some people can't afford to make them. If you're in that boat, then you might struggle to get an auto loan.
How to increase your chances of getting a car loan
While auto loans may be getting harder to qualify for, that doesn't mean all is lost. In fact, there are some steps you can take to increase your chances of success.
First, work on boosting your credit score. The higher that number is, the less risky a borrower you'll present yourself as.
Next, plan to shop around. Not only might that help you find a lender that says yes, but it might also result in a lower interest rate on your car loan.
Finally, do your part to save up a decent down payment for a car. A side hustle could be your ticket to checking off that box.
Auto loans have been harder to get, but some borrowers are getting them. And with the right strategy, you could be one of them.
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