Consumer Comeback Blog

Banks Begin to Ease Lending Standards on Auto, Credit Loans

Applying for any kind of loan can be a nerve-wracking experience, but consumers in the market for an auto or credit loan may be able to breathe a sigh of relief for the first time since the recession began.

In a possible indication of economic recovery, the Federal Reserve reported Monday that banks are easing lending standards over the last three months. The survey polled 64 domestic lenders and 23 U.S. branches of foreign banks to establish a lending and demand barometer.

At the height of the recession, consumers experienced increasing difficulty obtaining loans. As the economy has shown gradual improvement, lenders are loosening the slack on the loan reins. But much of this improvement has been fueled by competition from other banks and demand, rather than economic outlook.

As of May, the Fed reported that consumer credit rose at a rate of 8%, as more consumers are applying for auto and student loans. Demand for small business loans has remained unchanged, but the report indicated more consumers are applying for mortgages, but banks are still being conservative on prime mortgage lending.

“On balance, domestic banks continued to report little change in lending standards for prime mortgages and having tightened standards somewhat for nontraditional mortgages over the past three months,” the Fed reported. “Meanwhile, a relatively large net fraction of respondents reported having experienced stronger demand for prime and nontraditional mortgages over the same time period. In contrast, changes in both lending standards and demand for home equity lines of credit (HELOCs) were relatively muted on net over the past three months.”