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Auto loans could get even easier to find

[Jan 17, 2012.]


When it comes to auto loans, Susan Tompor is one of the better-informed writers in the mainstream media. Maybe it's because she writes for The Detroit Free Press, a newspaper that serves a city in which all matters related to vehicles are of particular interest to readers.

Cheaper auto loans -- and easier to get

Anyway, on Jan. 12, Tompor wrote a Free Press piece predicting two important 2012 trends concerning auto loans:

  1. Rates are now at record lows, and are likely to remain highly affordable.

  2. It could become even easier to get approved for auto loans.

Both of these should be music to the ears of anyone who's planning to finance a car this year. But what's the probability of the predictions coming true?

Auto loans accessible

The second (easy approval) is already true, and there seems little reason to expect that trend to change. Indeed, the Federal Reserve's latest consumer credit figures, which were published on Jan. 9 and cover the month of November 2011, suggest that approvals may have been getting easier for up to two years.

The Fed doesn't look at home-related financing in this particular analysis, and divides consumer credit into only two categories: "revolving," which is nearly all credit card debt; and "nonrevolving," which is mostly auto loans and student loans, but includes a few other much smaller categories. Nonrevolving credit has fallen only once in recent years, by 1.2 percent in 2009. It grew 1.5 percent in 2010, but in recent months has been much stronger. In November, it jumped at an annualized rate of 10.7 percent. Even if there were many student and other loans approved that month, that's highly likely to include a whole lot of car financing.

And that's almost certainly a very good thing. Reporting the Fed's data on Jan. 9, Bloomberg Businessweek explained why:

With more jobs and better pay, consumers could step up spending even further. That could lead more companies to add workers, which ultimately drives more spending and more hiring. Economists call that a virtuous cycle.

Auto loan interest rates less predictable

As reported on this blog recently (see Buying cars getting less affordable. Sign for auto loans now?), some experts believe the average overall cost of buying a car is already increasing, in spite of Tompor's claim that "car loan rates are at record lows." That may be partly because there are fewer promotions and bargains on dealers' lots, but also because only those with stellar credit can access those ultra-low rates. And the situation could be set to get worse.

Right now, the Fed is holding its rates at record lows in order to breathe life into the economy. But as soon as growth seems certain, it may be forced to increase those rates -- possibly very quickly -- to smother pent-up inflation. So you could see the current situation of low rates and high approvals as a window of opportunity. And how long it is going to stay open is anybody's guess.

If you're persuaded that you should act now to avoid the possibility of that window slamming shut, be sure of one thing: that you shop around for the very best auto loan quotes from both online and offline sources.


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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