Banks are making it harder to get a car loan — and it spells trouble for the auto industry

Banks have started to tighten lending standards for prime and subprime borrowers, and it shows.

Banks are further tightening their lending standards for prime and subprime auto loans. This process started in Q2 2016, when auto lending had reached the apogee of loosey-goosey underwriting that had boosted sales of new and used vehicles to record levels and had ballooned auto loan-balances outstanding to the $1-trillion mark. It also boosted risks for lenders. Inevitably, subprime auto loans started running into trouble in 2016, and it was time to not throw the last trace of prudence into the wind entirely.

The chart below — based on data from the Fed’s Senior Loan Officer Survey on bank lending practices for the third quarter — shows the net percentage of banks tightening lending standards. The negative percentages below the red line signify net easing. It shows how loan officers have gradually, in fits and starts, dialed back their easing before Q2 2016 and ratcheted up their tightening after Q2 2016.

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