Auto Loans Easier to Get--For Some

[Dec 20, 2009.]

 

Credit Score Is Driving Force Behind Auto Loans Decisions

According to Experian, in the third quarter of 2007, the average credit score of those buying new cars on credit was 749. A year later, it was 762. And during the same quarter in 2009, it was 775.

The same figures for those buying used cars were:

• 2007--663
• 2008--670
• 2009--684

Why the Shift in Loan Qualifications?

Lenders have faced increasingly high delinquency rates ever since the recent recession started to bite. In other words, more and more of their loans have started to go bad. Their reaction, understandably, has been to stop lending to bad risks, and concentrate on those they think are most likely to meet payments.

The good news, announced December 10 by Experian, is that--although it's still rising--the rate of increase in delinquent loans (those with payments more than 30-days late) has slowed. The number of 30-day delinquencies shot up by 9.5 percent between the third quarter of 2007 and the third quarter of 2008. But it rose by a more gradual 5.8 percent from then until the same period this year.

Scott Waldron, president of Experian Automotive, remarked:

We are seeing signs of stabilization in the automotive lending market that could spell good overall health for the auto industry in the long run. Lending institutions are making less risky loans right now. As some of the higher-risk loans from a few years ago come off the books, lenders will be in a much better position to serve the automotive market.

Too Soon to Take the Brake Off Auto Loans?

Easier auto loans for those with less than perfect credit scores may be on the horizon, but they haven't arrived yet. But there's room for hope. Mr. Waldron's colleague, Melinda Zabritski, director of Automotive Credit for Experian Automotive, explained:

While higher-than-average delinquency rates are still with us, and may be for some time, the fact that the rate of increase is slowing is definitely some positive news for an industry that hasn't had much as of late. These slowing delinquency rates, along with several other trends we are now seeing, should provide some cautious optimism for the market.

Road Ahead Not Necessarily Clear

Last week, TransUnion, another company specializing in credit management, unveiled its predictions for auto loans in 2010. And its forecast was less rosy. Peter Turek, automotive vice president in TransUnion's financial services group, described what he expects to see:

Our forecast indicates we will see auto loan delinquencies drop in the first and second quarters of 2010 due to many factors such as 'cash for clunkers' and tightening lending standards.

Delinquencies will rise in the second half of 2010 as economic pressures, along with traditional spending patterns of summer vacations, back to school and the holidays, will continue to strain consumers. While the rate of increase should be relatively mild, it is a cautionary number to those expecting an abrupt turnaround in the auto finance industry.

Auto Loans Still Out There

Of course, there's no reason to despair if you need to change cars, but have a sub-prime credit rating. Very cheap loans may take a while to come back, but there's plenty of credit still around if you know where to look.

Check out a great range of auto loans, including no credit check loans, here.

 

About Author:

Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage lending and loss mitigation. She enjoys writing articles about personal finance and debt management. Karen holds an MA degree in English from the University of Nevada, Reno.