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Auto loans "roaring back," says Wall Street Journal

[Sep 27, 2010.]


Cheap auto loans -- how they work

The companies that issue auto loans rarely retain the debt for long. They generally package up a large number of loans into a bond and sell that bond to investors.

Up until recently, times have been tough for lenders (and, come to think of it, borrowers). After the credit crunch, when many investors burnt their fingers on consumer credit -- and, especially, mortgage -- bonds, there were few debt buyers in the market. That meant lenders couldn't lend and borrowers couldn't borrow. And that's why there's a good chance that you weren't able to finance a car purchase in and around 2009.

It's getting better all the time

The trend that has seen investors more keen to buy bonds based on auto loans has been around for some months now. But September saw a wave of new deals. Midway through the month, The Wall Street Journal reported three such offerings in a single day. Nissan unveiled a $1 billion bond, BMW another worth $750 million and AmeriCredit Auto Receivables Trust a third for $700 million. No wonder the Journal described the consumer loan-backed securities market as "roaring back."

And, speaking of roaring, auto loans make up the lion's share of that market. By early September last year, they comprised almost exactly 40 percent of all 2009's asset-backed securities. At the same time this year, they accounted for over 55 percent.

Wall Street resurrects auto loans specialist

No surprise, then, that September 22 saw BusinessWeek report a fourth issue. This was for $1.29 billion, and came from Toyota. The next day, and it was back to The Wall Street Journal to hear that there are plans to resurrect Chrysler Financial by Cerberus Capital Management LP, which was the nation's biggest auto loan lender before the crash.

These plans follow the effective killing off of Chrysler Financial by the U.S. Treasury, and are about as close as Wall Street gets to reenactments of the story of Lazarus. The revived company is no longer associated with the eponymous car maker, but sources say that it is looking to play actively in the auto loans and leasing markets, and intends to offer financing for used cars to those whose credit scores are in the 620-679 range. Those in this group made up 30 percent of used car purchasers in 2009 and more than half in 2008.

Cheap auto loans are here already

All of this Wall Street bond and investment activity is -- naturally -- welcome. It's likely to make it easier to borrow cheaply down the line. But there are already great deals out there for most buyers, including those who need no credit check loans. Find some highly competitive quotes here.


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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