3 Reasons Why It’s Tougher to Get Auto Loans Right Now

Here are three reasons why auto loans are harder to get these days and the impact that trend has on the vehicle purchase market.

Brian O'Connell

Published: 5/28/2025, 12:04:23 AM EDT

3 Reasons Why It’s Tougher to Get Auto Loans Right Now — Vehicles for sale at a Honda dealership in Houston, Texas, on April 7, 2025. (Ronaldo Schemidt/AFP via Getty Images)

Car buyers might find themselves at a crossroads right now, feeling anxious to buy vehicles before soaring tariffs boost prices, while also up against increasingly high auto lending standards.

That’s the case as bigger auto lending outfits are pulling back on loans in the first half of 2025. Ally Financial, for example, attracted 3.8 million loan applications in the first quarter of 2024, but the company's approval rate on loan applications fell from 35 percent in 2022 to 29 percent by the end of 2024.

Other lenders are still green-lighting auto financing deals, but they're getting more selective about whose loan applications are approved too. In the first quarter of the year, over 50 percent of Capital One's approved loans went to the highest-rated credit applicants.

“We are still leaning in, but it’s with a very watchful eye with respect to this uncertain economy,” Capital One Chief Executive Richard Fairbank said on a call with analysts last week.

Auto loan rejection rates rose from 5.8 percent in October 2024 to 9.1 percent by February 2025, according to the Federal Reserve Bank of New York. According to the New York bank’s data metrics for auto loan applications, the average perceived probability of an auto loan rejection reached 33.5 percent, the highest level since the agency began tracking loan numbers in October 2013.

“The auto finance industry has tightened significantly of late,” Deepak Shukla, CEO of Pearl Lemon Accountants, a London-based financial advisory firm, told NTD via email.

Lenders are particularly cautious because of the rising vehicle price, which has lowered buyers' loan-to-value ratios. “Apart from that, most financial institutions are seeing greater default rates and are lowering their credit requirements to reduce risk,” Shukla said. “This shift has resulted in increased interest charges and tighter approval processes, which have made it all the more difficult for buyers to find financing.”

Why Auto Loans Are Harder to Get Right Now

What’s behind the tighter auto financing standards?

1. Consumers Have Had to Tighten Their Wallets

Cash for a new car is hard to come by in 2025, sending a message to auto lenders that consumers are struggling with household budgets right now, which has led to red lights on auto loans.

Household cash is so tight that the average likelihood of being able to come up with $2,000 if an unexpected need arose within the next month fell to 62.7 percent, a 12-year low, the New York Fed stated.

2. Trade-In Deals Are Waning

Dating back to the COVID-19 pandemic years, auto owners opted to keep their vehicles rather than buy a new one, partly due to personal budgeting and health and safety reasons that kept people indoors in 2020 and 2021.

Consequently, the average car trade-in age has risen, which has led to a decline in trade-in vehicle values. This scenario makes it more difficult for consumers to come up with enough collateral to close a car loan.

3. Tariff Troubles

The Trump administration has backed off its across-the-board 25 percent auto tariffs established in April, offering manufacturing discounts for automakers who build vehicles in the United States. That move has curbed some of the tariff pain, but existing U.S. trade policies are likely to boost new vehicle prices by thousands of dollars, given rising parts costs, supply chain constraints, and higher tariffs.

Lenders Are Treading Cautiously

Overall, banks and other auto lenders are more cautious due to economic uncertainty, increased interest rates, and tighter credit standards.

“These issues have led to banks placing high-quality customers at the front and sacrificing lower-end applicants with poorer credit or worse credit records,” Shukla said.

Auto consumers can improve lending outcomes, but it will take some household budgeting discipline.

“Loan prospects should focus on improving their credit scores, saving for a larger down payment, and choosing shorter loan terms to improve their loan-to-value ratio,” Shukla said. “Shopping around for the best prices and negotiating with credit unions or smaller lenders may also help secure a better deal.”

The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.