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Are Cheap Auto Loans Here to Stay as Car Sales Rev Up?

[Apr 26, 2010.]


Cheap Auto Loans to Stay Cheap?

Earlier this month, CNN Money ran a feature about how the cost of borrowing looks set to rise quickly. Under the headline, "Getting a loan will be pricier" it warned that interest rates for mortgages and credit cards--which are already rising--are likely to increase significantly over the coming months.

However, CNN Money had good news for those thinking of buying a vehicle; it said that auto loans may well be "the one borrowing bright spot."

There are two probable reasons for that. First, the supply of money for auto loans exceeds current demand. And second, car manufacturers are likely to keep offering incentives--including cheap loans--for some time to come.

Banks ♥ Auto Loans

When NASDAQ reported April 23 on banks' lending patterns, it found two "loan-growth hot spots"--cars and students. And it suggested a number of reasons why auto loans are so popular with bankers, including:

  • The recovery is allowing more borrowers to stay current on their car payments
  • Lenders see stronger used-car prices as providing greater security than previously
  • The credit crunch wiped out much of the competition in the auto loans sector

All this has meant real growth in car credit for consumers. NASDAQ says that SNL Financial, a company that tracks these sorts of loans across 19 different banks, reports that vehicle lending among these has shown consistent growth over the last nine months, and that last quarter was nine percent up on June 2009.

Cheap Auto Loans Mean More Car Sales

On April 22, AutoNation, Inc. unveiled its first quarter results. And the company, which claims to be America's largest automotive retailer with 249 new vehicle franchises in 15 states, was celebrating.

That's because AutoNation was experiencing double-digit revenue growth, and its first quarter new vehicle unit sales were 19 percent up on the previous year. And why was that? Well, Mike Jackson, the company's chairman and chief executive officer, told the Miami Herald that ''First and foremost, the credit environment has improved.''

The Herald went on to suggest that "Banks and other lenders are again willing to approve loans for car buyers after having closed the spigots last year."

Don't Eat Dust

If you're not the sort to stay in the slow lane, check out your options now. You can get an auto loan quote, regardless of your credit.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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