More Americans are getting turned down for loans, with the rejection rate at its highest since 2018, according to new figures from the Federal Reserve. Roughly 22% of loan applications over the last month were denied, likely due to higher interest rates and recent bank failures, notes Forbes. The borrowing challenge comes just as the conclusion of multiple pandemic-era programs at once could leave millions of Americans teetering on the edge of a financial cliff, Axios reports. For instance, when payments on federal student loans resume in October after a three-year pause, it will feel like a 5% pay cutto some households.
- Similarly, the end of $52 billion in federal assistance for child care programs means that as many as 70,000 facilities could close, and four in 10 programs expect to increase tuition.
- Families that “will be affected on multiple dimensions” are especially at risk, Krista Ruffini, an assistant professor at Georgetown, tells Axios.
- However, Americans’ bank balances are generally higher than they were pre-pandemicby about 10 to 15% – though many people are quickly spending down the excess.
By Melissa Cantor, Editor at LinkedIn News
Over 20% Of U.S. Loans Rejected In Last Year—Hitting 5-Year High
TOPLINE
Some 21.8% of U.S. loan applications over the last month were denied—the highest rejection rate since June 2018—according to new data from the Federal Reserve, which might suggest higher interest rates and fears from recent bank failures are making it harder for Americans to borrow for everything from cars to houses.
KEY FACTS
Four months ago, the last time this data was reported, the rejection rate was 17.3%.
The rejection rate for mortgages was 13.2%, and 20.8% for mortgage refinancing applications.
The Federal Reserve survey also found that nearly 46.1% of those who applied for mortgages expected their loan to be denied, showing a lack of confidence.
Additionally, 30.7% of auto loan applicants expected their loans to be denied as well as 32.8 percent of credit card applicants, 42.4 percent of credit limit increase applicants and 29.6 percent of mortgage refinance applicants.
Since the Federal Reserve began tracking this data, the rejection rate has peaked at 24.2% in October 2014, and the lowest it’s been was 13.8% in June 2014. In February 2020, immediately before the Covid-19 pandemic was declared, it was 14.2%.
KEY BACKGROUND
This is the first batch of loan rejection data that’s been released since Silicon Valley Bank collapsed in March, which was quickly followed by two other regional bank failures—Signature Bank and First Republic—and sparked concerns about a potential wider banking crisis. In the first three months of this year, which lined up with the SVB collapse, more than 40% of loan officers told the Fed they were tightening standards for commercial loans to smaller borrowers and large firms alike. This data also comes after the Federal Reserve hiked interest rates to combat inflation, a strategy that is likely curbing lending. The Federal Reserve raised interest rates 10 consecutive times starting in March 2022. However, these rate hikes may slow down or end altogether soon: In June, as inflation slowed, the Federal Reserve decided not to raise interest rates for the first time since it began its anti-inflationary measures, though Fed officials signaled they are open to more rate increases in the future.
BIG NUMBER
4.5%. That’s how much the rejection rate for U.S. loans increased in the past four months.
BY: William Skipworth
