This Big East Coast Bank Is Cutting Back on Providing Auto Loans. Here's Why

Given where car prices are at today, many consumers can't afford to pay for a vehicle outright, whether it's new or used. That's where auto loans come in.

But one major player in the auto loan space has announced plans to pull out of it. And that leaves consumers with one fewer borrowing option to fall back on.

A departure from auto lending

Citizens Financial Group cut back on auto lending in 2022 and recently announced plans to reduce its exposure to auto loans going forward. The bank cited minimal returns as one reason for that decision. But the primary reason boils down to risk.

Many auto loan borrowers are considered subprime -- meaning, they're borrowers without particularly great credit. Borrowers like these pose a big risk to lenders, whether in the context of auto loans, personal loans, or any sort of loan product. Citizens is trying to reduce its risk by shying away from auto loans, since those may have a higher likelihood of default.

But the news isn't all bad. While Citizens might be pulling away from auto lending, it's aiming to grow its lending business in other ways. The banking giant says it intends to branch out by offering more home equity loans as well as credit cards.

That said, Citizens plans on being selective when it comes to extending credit to borrowers. And it's surely not the only lender to adopt a more cautious approach.

For months on end, financial experts have been sounding warnings about an impending recession. If economic conditions were to deteriorate, it could easily lead to an uptick in loan defaults across the board. As such, many lenders are tightening their standards when it comes to credit availability.

In fact, in addition to cutting back on auto lending, Citizens plans to do the same with mortgage loans. However, the bank doesn't intend to reduce mortgage lending to the same degree as auto lending.

There are still plenty of lenders to choose from

It's important for consumers to have options in the context of any loan they're looking to take out. Being able to shop around for rates can lead to a better deal overall.

The good news is that even with Citizens pulling away from the auto loan game, those needing to finance a car still have choices. But the best way to increase the chances of getting approved for an auto loan, and one with a competitive interest rate, is to come in with strong credit.

Borrowers whose credit scores could use work may be able to boost those numbers by being timely with bills and, if possible, paying down existing credit card debt (though for many, this won't be so feasible). Checking for errors on credit reports is another way to potentially help a credit score increase.

All told, borrowers should expect fewer options in light of recession warnings -- whether because lenders back away from certain loans or because they opt to get stricter. Having solid credit is an especially important thing at a time when there's so much economic uncertainty.