Survey Reveals Half of Loan Applicants Denied Since Federal Reserve Began Raising Interest Rates

• Younger generations more likely to be denied loan or financial product

March 16, 2024

By Branrate

New York, NY – (Highpoint Digest) – A report released by Bankrate on March 04, 2023, found that half of loan or financial product applicants (50%) had been denied since the Federal Reserve began raising interest rates in March 2022,
according to a new Bankrate survey. Additionally, almost 1 in 5 (17%) applicants have
been denied more than one financial product.

Credit card applications have been denied the most (19%), which includes 14% of those
who have been denied a new credit card and 6% of those who have been denied a
balance transfer card. Others were denied a credit limit increase on a credit card (11%),
a personal loan (10%), car loan or car lease (9%), insurance (8%), debt consolidation
loan (6%), mortgage loan (5%), home apartment rental application (5%) home equity
loan or home equity line of credit (3%). The remainder don’t know/can’t recall (5%) or
prefer not to say (4%).

“One of the ways higher borrowing costs wrestle inflation is by slowing the flow of credit
to households and businesses,” said Bankrate Analyst Sarah Foster. “Lending doesn’t
stop, but financial firms grow pickier about who they approve for a loan, assessing
factors such as income, outstanding debt and payment history.

The share of Americans who have been denied a loan or financial product rise
substantially for those with lower credit scores. Specifically, 73% for those with “poor”
credit (a score ranging from 300 to 579), 63% with “fair” credit (ranging from 580 to
669), and 55% with “good” credit (ranging from 670 to 739) are more likely to be denied
a loan or financial product. Conversely, less than one-third of those with “exceptional”
credit (ranging from 800 to 850) have been denied a loan or financial product (29%).
Younger generations were more likely to apply for new financing, but are also more
likely to be denied. Specifically, 44% of Gen Zers (ages 18-27) and 53% of millennials
(ages 28-43) applied for loans or financial products, compared to 40% of Gen Xers
(ages 44-59) and 34% of baby boomers. Among those who applied, 58% of Gen Z and
60% of millennials were denied, while 49% of Gen Xers and 33% of baby boomers
experienced the same outcome.

Parents of children younger than 18 years old are also more likely to have sought out
financing since the Fed began raising interest rates (59%) compared to adults without
children (37%) and parents of children older than 18 years old (39%). Among parents
with children younger than 18 who applied for a loan or financial product, 62%
experienced at least one denial, versus 49% of individuals with no children or 39% of
parents with children older than 18.

More than 8 in 10 Americans who have been denied a loan or financial product since
the Federal Reserve began raising interest rates (82%) say it negatively impacted their
finances in some way. Specifically, 32% say they felt more stressed about their finances
and 23% say they turned to alternative financing to access the credit they needed, such
as payday loans or cash advances.

“One of the best ways Americans can insulate themselves from higher interest rates is
by concentrating on their credit score, which may be the factor that impacts them more
than the Federal Reserve itself, ” added Foster. “Lower your debt-to-income ratio, make
payments on time and aim to utilize no more than 30% of your available credit.”

Methodology:
Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise
stated, are from YouGov Plc. Total sample size was 2,483 U.S. adults, of whom 1,046
have applied for a loan or financial product since rates increased. Fieldwork was
undertaken between January 31-February 2, 2024. The survey was carried out online
and meets rigorous quality standards. It employed a non-probability-based sample
using both quotas upfront during collection and then a weighting scheme on the back
end designed and proven to provide nationally representative results.

Source: BanrRate

Image courtesy of Bankrate