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Auto loans industry keeps pedal to the metal

[Oct 3, 2011.]


It's a continuing story: the auto loan industry is in top gear and is still accelerating away like a muscle car on NOx. Of course, it's important that lenders choose only borrowers who can afford to keep up with their payments, but perhaps this time around the people who provide finance have learned their lesson.

Auto loans businesses creating jobs

Such responsible lending to prime and subprime borrowers seems to be the policy of GM Financial (previously AmeriCredit), the General Motors subsidiary headquartered in Fort Worth, Texas, at least according to a corporate profile run on Friday by a local newspaper, The Star-Telegram. And business is booming, especially among those whose credit reports have taken a bit of a battering over the last few years.

The newspaper says that the company wrote nearly $2.5 billion worth of auto loans during the first half of 2011, 63 percent more than it did during the same time last year. Profits were up $173 million over the same period.

As importantly, GM Financial has employed 500 new people nationwide over the past year. Add to those the number of new jobs that the lending has directly created (in car builders, parts manufacturers, dealerships, transportation companies and so on) and you may begin to wish that all sectors of the economy were doing so well.

Auto loans for subprime borrowers growing fast

GM Financial's experience with subprime borrowers seems to be shared by many other lenders across the industry. A recent report from Experian Automotive revealed that less-than-prime loans for new vehicles had jumped 22.4 percent by the second quarter of this year, compared with the same period in 2010. Indeed, during the April-June quarter of 2011, 22.29 percent of all successful applications for auto loans for new vehicles were made by people who don't fall into the prime category. Indeed, those regarded as having the most damaged credit (so-called "deep subprime" borrowers) saw the biggest jump in those successful applications: up a whopping 44.1 percent compared with the same quarter last year.

When interviewed by The Star-Telegram, GM Financial CEO Dan Berce explained why lenders are more confident in lending to people outside the prime category. He identified three reasons in particular:

  1. Consumers are prioritizing their auto loan payments over many other debt obligations.

  2. Americans are generally being more responsible in how they manage credit.

  3. The personal consequences of defaulting on auto loans are much more serious now than they were before the credit crunch.

Quotes for auto loans

If you've had some financial problems over the last few years, and know that your credit score isn't as healthy as you'd like, you may have assumed that you'd automatically be turned down if you tried to buy a new or used car. And for a while you'd almost certainly have been right. But things have changed recently, and--while there are no guarantees--you're likely to stand a much better chance of seeing your loan approved today than for some years. So why not check out some competitive quotes for auto loans now?


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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