Auto Lenders Turn Down More Loans, Research Firm Says

(MoneyWatch)  Most still get approved, but even prime-risk customers are having a harder time getting auto loans approved in the current credit crisis.

That's according to CNW Marketing Research, which said that the share of auto loan applications that got final approval dropped for all three of the main credit-risk categories -- prime, near-prime, and subprime.

"Even a prime customer is having a significantly harder time getting a loan approval. And those loans that are approved have to be submitted to more financial institutions," said CNW President Art Spinella, in a Sept. 25 note.

In 2008, about 81 percent of prime-risk loan applications eventually got approved, down from about 91 percent in the year-ago period, from Jan. 1 to Sept. 20, CNW said. Near-prime approvals fell to 77 percent, from 86 percent.

What's unknowable from this particular data is what those customers did next. Some may have decided to hold onto their existing vehicles longer. Some may still have bought a vehicle, but they had to re-apply for a different loan and pay more, in the form of a bigger down payment, higher interest, or a longer loan term. Some may have settled for a less-expensive new vehicle, or a used vehicle. Some households may have ended up with one less car.

The subprime auto loan category fell the most, as might be expected, considering that the disaster in subprime mortgages helped kick off the credit crisis in the first place.

Spinella said subprime approvals fell to only about 23 percent, down from 67 percent a year earlier.

Spinella didn't say so, but that extreme turnabout helps suggest how the finance industry got into the current mess. A year ago, more than two-thirds of the riskiest customers, paying the highest interest rates, got approved. A year later, the industry is turning down three out of four.