Loan Demand in the U.S. Slows as High Interest Rates Reshape Borrowing Behavior
October 10, 2025 | Washington, D.C. — As the U.S. economy adjusts to an extended period of high interest rates, the loan market is showing clear signs of cooling. Both consumer and business loan demand have slowed in recent months, with borrowers facing higher costs and stricter lending standards from banks and financial institutions.
According to the Federal Reserve’s most recent Senior Loan Officer Opinion Survey, lending institutions reported weaker demand for commercial, consumer, and real estate loans during the third quarter of 2025. This comes as the Federal Reserve continues to hold its benchmark interest rate at 5.5% — the highest level since 2001 — in an ongoing effort to keep inflation under control.
“Loan volumes are down across the board, and that’s not surprising given how expensive borrowing has become,” said Carla Jennings, chief credit analyst at CapitalLink Advisors. “Consumers are pulling back, and businesses are thinking twice before taking on new debt.”
Consumer Lending Declines
Consumer lending, particularly for mortgages and auto loans, has slowed sharply. Mortgage rates remain elevated, with the average 30-year fixed rate at 7.4%, pricing many potential homebuyers out of the market. Mortgage applications have declined for the fourth straight month, according to the Mortgage Bankers Association.
Auto loans are also affected. New vehicle financing rates now average over 8%, leading to a drop in auto sales and a rise in loan delinquencies. Meanwhile, credit card balances have hit record highs, with average annual percentage rates (APRs) exceeding 21%.
“Many households are relying on credit cards for everyday expenses, but the high interest makes it difficult to pay down balances,” said Jennings. “We’re starting to see an uptick in missed payments.”
Business Loans Face Tightening Standards
On the commercial side, small and mid-sized businesses are finding it harder to access affordable financing. Banks have tightened underwriting standards, particularly for unsecured loans and lines of credit. According to the National Federation of Independent Business (NFIB), 44% of small business owners in Q3 reported that it is harder to obtain financing compared to a year ago.
In contrast, large corporations with strong balance sheets are still securing capital through corporate bond markets or long-term credit facilities, though at higher costs.
To support smaller enterprises, the U.S. Small Business Administration (SBA) has expanded its 7(a) loan program, with a 15% increase in approved loan volume this year. However, many businesses say it’s still not enough to meet growing capital needs.
Outlook for 2026
The outlook for the U.S. loan market depends heavily on Federal Reserve policy. Chair Jerome Powell recently indicated that rate cuts could be possible in mid-2026 if inflation continues its downward trend. Such a move would likely stimulate borrowing and ease financial pressure on consumers and businesses alike.
Until then, financial advisors recommend cautious debt management, refinancing where possible, and maintaining strong credit to secure better loan terms in the future.
“The lending environment is tight, but those who stay financially disciplined can weather this cycle,” Jennings added.
Let me know if you’d like a version of this article focused more on personal loans, student loans, or mortgages.
