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Auto Loans: Never a Better Time to Buy

[Nov 9, 2009.]


Cheap Loans Tempt Few Americans

The Federal Reserve published its latest data on consumer debt Friday. The figures show that average interest rates for new auto loans at specialist car finance companies remain extremely low at 3.5 percent. And, last Wednesday, the Fed announced that it expected its federal funds rate to stay in the zero to 1/4 percent range 'for an extended period'.

All of which means that there's some very cheap money to be borrowed by those who can--and who wish to--take on credit.

But those Fed figures from Friday--along with other surveys--also show that there are few takers for those cheap loans. Indeed, far from increasing their indebtedness, individual Americans paid down what they owed by very nearly $15 billion in September 2009 alone. Consumers still owe $2.46 trillion, but that's the lowest amount since 2006.

Borrowing Can Still Be Smart

Just because most people are steering clear of credit that doesn't mean that all borrowing is a bad idea in all circumstances. Right now many Americans are worried about unemployment, or reduced earning power due to shorter working hours. Others own homes that are underwater. Yet others have bad FICO scores that mean they can only qualify for no credit check loans.

Clearly, people in one or more of those circumstances should consider taking out further loans only in exceptional circumstances. But for others--those whose finances are brighter, and more secure--this could be an excellent time to borrow.

Become a Predatory Borrower

The concept of predatory lending is a familiar one. But for those consumers lucky enough to be creditworthy the tables have turned. And predatory borrowing is the new black.

For instance, someone who's thinking of buying a new car might be planning to put down as large a cash deposit as she can afford so as to manage her overall indebtedness responsibly. But the smart move might be to minimize the cash deposit, and maximize the size of the auto loan.

That way, she can use that cash left over from the car purchase to pay down her credit card balances, which are probably attracting interest rates that are three times higher than the auto loan. Borrowing can mean saving.

Predators Seize the Right Moment

Timing is of the essence in successful predation. Just ask any hunter. And the same principle applies in predatory borrowing.

Earlier in the year, car dealerships were offering some amazing deals. And there are still quite a few great ones around. But the most successful predators are in no hurry.

Car buyers should wait to pounce until the right sticker price, and the right incentives, coincide with the right auto loan rate. The first step is to check out the best auto loan deals available locally. After that, start monitoring dealerships.


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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