Good luck getting a loan

Receive free US interest rates updates

We’ll send you a myFT Daily Digest email rounding up the latest US interest rates news every morning.

One way monetary policy works is that it pressures banks’ profitability (sometimes in extreme ways!), so banks tighten up on the amount of credit they extend to their customers.

There are clear signs of this in consumer-credit data published by the New York Fed today. The labelling for the x-axis in the chart below is . . . absent, but the data series starts in October 2013, and has been published three times a year since then. (Readers can find the interactive chart with full detail here.)

The June survey found that 8.8 per cent of respondents were rejected after applying for credit in the past year, up from 7.1 per cent in February. That was the highest share of people who both applied and got rejected since the Fed’s prior rate-hiking cycle in 2018:

Let’s try to come up with some upbeat way to interpret this. Maybe . . . fewer people are applying for credit because interest rates are high, so the people who are applying have lower credit scores?

That’s not a great interpretation, though. The credit-application rate only dipped slightly, to 40.3 per cent from 40.9 per cent, while the overall rejection rate rose by 4.5 percentage points to nearly 22 per cent. That’s the highest rejection rate since June 2018.

People with lower credit scores aren’t applying to borrow much more often, but they are getting rejected more, according to the New York Fed data.

Those borrowers made up 53 per cent of applications — very close to the long-term average, and the same share as October 2019 — but had a rejection rate of 56.7 per cent, the second-highest on record:

Oh also . . . do you want to take out a loan to buy a car? Yikes, sorry! For the first time ever, the auto-loan rejection rate was higher than the application rate.

To be fair, that factoid doesn’t really mean much (it compares apples to oranges and whatnot). But the main takeaway is still notable: A record share of the past year’s auto-loan applicants have been rejected.

And to take the dumbest possible perspective, it’s kinda wild to see the red line climb above the blue line!

And that’s before you need to insure the dang thing.