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Cheap auto loans continue to make a comeback

[Sep 12, 2010.]


Auto loan lenders ran scared

The reason auto loans became so scarce during the credit crunch wasn't because lenders stopped wanting to lend. That's how they make their money. No, it was because they lost confidence that borrowers would be able to repay them.

Well, there are signs that that confidence is returning to the auto loan market by the speeding truck load. At the end of August, TransUnion -- one of the big-three credit bureaus -- published its quarterly review of auto loans. And its findings were enough to warm the heart of even the most cautious lender as delinquencies (loans that are 60 days or more past due) fell precipitously while new lending increased.

Delinquencies down -- the details

Peter Turek, automotive vice president in TransUnion's financial services group, summed up the delinquencies situation:

The national trend we are seeing continues to point to a clear improvement in payment behavior... This movement toward fiscal responsibility is reflected in year-over-year results as auto delinquency rates now have dropped 27.4 percent since second quarter 2009 -- the largest decline since the summer of 2001. On a state-level basis, 46 states experienced a drop in their quarter-to-quarter delinquency rates, while only 3 states showed an increase on a year-over-year basis.

Those three states were Rhode Island, Utah and Montana.

Borrowing down

As BusinessWeek pointed out September 8, economists are fairly unanimous in their view that consumer borrowing generally is falling as households save more and borrow less. And that isn't entirely good news for the U.S. economy, which relies for 70 percent of its activity on consumer spending.

Sure enough, when later the same day the Federal Reserve issued its statistical release concerning consumer credit for July 2010, it showed that overall credit fell by $3.6 billion that month. Indeed, July was the 21st month in a row that had seen credit card debt fall.

Auto loans up -- a triple bonus

But there was one bright spot for the economy -- auto loans. The Fed figures showed that non-revolving credit (which is largely made up of auto loans) bucked the trend by actually rising. And it revealed that the interest rates for new car loans from auto finance companies -- which the survey suggests are consistently cheaper than those from banks -- were at their lowest since 2005. Not only that, but the average loan-to-value ratio was falling while the dollar value of each loan was, on average, rising.

Taken together, that means that already cheap auto loans are getting cheaper, and that individual consumers are borrowing more with lower down payments. A triple bonus, indeed.

If all this tempts you to buy a new or used car, check out some great deals on cheap 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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