According to data from the Federal Reserve Bank of New York, a growing number of consumers in the United States are not seeking loans due to an expectation of refusal amid tightening credit conditions. The proportion of discouraged borrowers, defined as those who believed they needed credit but did not apply due to anticipated rejection, increased to 8.5% in the New York Fed’s latest Survey of Consumer Expectations. This marks the highest level since the survey’s inception in 2013.
The anticipated likelihood of being denied credit has risen across various forms of credit, including credit cards, secured loans, and financing for homes and vehicles. Approximately one-third of auto loan applicants expected denial—the highest proportion since the survey began—while nearly half of respondents in the February survey anticipated that obtaining credit would become more challenging within the year.
The data reflects the increasingly precarious nature of household finances for many Americans, as a slowing labor market reduces wage growth and high borrowing costs complicate bill payments. Although delinquency rates remain low compared to pre-pandemic levels, they are gradually increasing across most categories, prompting lenders to exercise caution.
More than 40% of U.S. homeowners who attempted to refinance their mortgages had their applications rejected, according to the February survey—quadruple the figure reported in October 2023. With mortgage lending rates still significantly higher than a few years ago, many individuals seeking refinancing are likely attempting to access equity accrued during the recent housing boom to manage other debts or expenses, rather than reduce their monthly payments. Failure to achieve refinancing could pressure some to sell their homes.
Additionally, the proportion of consumers in the New York Fed survey who reported the ability to access $2,000 in response to an unexpected financial need dropped to 63%, setting a new series low.
