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Auto Loans Remain Scarce in spite of Bank Bailouts

[May 7, 2009.]


Bloomberg Press reports that the volume of non-revolving consumer credit, which includes auto loans, has reached its lowest volume since 1990. The article asserts that lending institutions continue to tighten consumer credit in spite of federal cash infusions. Continued high unemployment and bank losses are cited as reasons for the failure of lenders to loosen consumer credit. Consumers seeking cheap auto loans can expect to encounter obstacles if they don't have good credit scores.

Auto Loans and Credit Scores

Unlike credit cards, auto loans are secured debt. The lender theoretically takes less risk due to their ability to repossess vehicles from consumers who don't pay for them. Less risk can translate to good news for consumers, as new car loans typically have lower rates than unsecured credit. If you need (or want) a new car, don't be discouraged. Auto loans are available, and here are some steps you can take to help qualify for favorable financing rates.

No Credit or Bad Credit

If you have no credit, or bad credit, it may be worthwhile to establish or improve your credit before attempting to take out an auto loan.

  • Establishing or rebuilding credit: Try taking out a small personal loan from a bank or credit union and repaying it over time, but before it's due and payable. This can open up potential opportunities for getting a car loan at better rates.

  • Shop Lenders Before Shopping for a Car: Approach two or three lenders and ask about auto loans. This is useful for negotiating with car dealers, and can help in finding more favorable financing terms. Shopping for an auto loan before setting foot on a car lot also helps you stick to affordable vehicles. The buy now, pay later plan doesn't work when payments go beyond the budget.

  • Make a large down payment:  Trade-ins and down payments reduce lender risk; the less the amount of a car loan, the more likely it will be repaid. Making a larger down payment can help qualify for better financing terms.

Carefully planning an "auto purchase strategy is useful for saving money and avoiding unpleasant surprises.

A Fast Loan isn't Always Best

Borrowing to buy a car typically involves a large amount of money; it's a good idea to carefully evaluate and compare rates and repayment options before selecting an auto loan. Buying a fast car is one thing, but taking out a fast loan without comparing loan terms can be costly. Avoid "sign here, and she's all yours" offers.  Of course, dealerships may offer favorable financing, but this can't be verified without comparing financing options.


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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