It's the hardest time in recent history to get a car loan

• It's harder than it has been in a long time to get a car loan.
• Lenders are denying more than 14 percent of car-buying loan applicants, per the Federal Reserve. 
• It comes amid increasing car loan payments and growing delinquency rates. 

Car buyers are facing some of the highest interest rates and monthly car payments in history — at a time that the rate of auto loan rejections is soaring.

Since the start of the COVID-19 pandemic, vehicle shoppers have been hit with a whirlwind, starting with low inventory, resulting in high prices for new and used vehicles. As inventory began to stabilize, sky-high interest rates came next.

Now, many drivers looking for a new ride aren't able to get a loan — and more than 14% of them couldn't in June, according to the Federal Reserve. That's lower than the overall loan rejection rate of nearly 22%, but it's still up from 9% just four months earlier, and it marks the highest likelihood of auto loan rejection in recent history. 

The hike in rejections can be attributed to the overall macroeconomic climate — and the fact that some drivers have more debt on their cars than the car itself is worth. Lenders may be worried about climbing balances and increasing delinquency rates, according to Experian. As of the first quarter, 1.89% of loans were delinquent at 30 days, while 0.76% were delinquent at 60 days — and both numbers are growing.

"Because of the overall banking environment, we're actually seeing a pullback from the banks on auto lending," Pat Ryan, CEO of car-shopping resource CoPilot, said in July.

Meanwhile, consumers keep getting hammered by high interest rates and even higher monthly car payments. In June, average interest rates for new vehicle loans increased to 7.2%, while they increased to 11 percent for used vehicle loans, according to auto buying firm Edmunds. And the average monthly car payment reached a record high of $733 in the second quarter this year, with more than 17% of consumers paying more than $1,000 a month, per Edmunds. Buyers need helpful loans more than ever.

CoPilot's Ryan noted it's especially true for used cars, and that factors like student loan payments are having an affect on the environment, too.

"The availability of consumer credit in the used market is going to feel tighter in a way it doesn't in the new market," Ryan said. "Now that student loan payments are required again... that part of the market is likely to put pressure on delinquencies and we'll see an increase in delinquencies, which will make lending tougher."

What buyers can do 

Direct lender Navy Federal saw a record application flow and number of loans in May, Gary Guthridge, assistant vice president of the consumer lending portfolio, told Insider last month — and he expects that to continue given the broader dynamics.

He said consumers should be prepared going into a dealership, and recommended getting pre-approvals where possible.

"In today's world, because the rates are higher, prices of cars are higher, people are so self-aware of what the payment's going to be. When you get pre-approved, you already know going in that: I want to buy a $40,000 car, this is my rate, this is my term, and I'm very, very happy with my payment," Guthridge said.

"You finance $40,000 at 72 months, at our best rate, your payment's going to be about $650 a month. But if you decide that you want 60 months, your payment's $100 more a month higher. So if they know that going in," he added, "they have some negotiating power."

With uncertainty surrounding the market and economy, it's important to prevent sticky situations later on; for example, keeping one's payment ratio to 15 to 20% of their gross monthly income and keeping a reasonable loan term.