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Cheap Auto Loans Keep Getting Easier to Find

[Aug 2, 2010.]

 

Auto Loans More Available

In mid-July, CNW Marketing Research published a new study that should brighten the day of anyone planning to buy a car. It's continuing to get easier to be approved for all sorts of auto loans.

Reporting the research, Associated Press (AP) says that, back in 2008, 30 percent of all auto loan applications from those with the very highest credit scores were turned down. If even their applications were declined, what chance did anyone else have?

You may know the answer to that from personal experience. Because--even as recently as last year--95 percent of subprime applicants were rebuffed and 30 percent of those with average credit scores faced refusals.

A Better Chance

Today, those with great credit are approved about 90 percent of the time, while 82 percent of those with average scores are similarly successful. Meanwhile, 17 percent of all new car loans--and, during the first quarter of this year, a huge 53 percent of used car loans were given to subprime borrowers--including those requiring no credit check loans.

Of course, there's a very close correlation between your credit score and the keenness of the deal you're likely to be offered. AP warns subprime borrowers that they should expect to pay at least 10 percent in interest for their auto loans and come up with a sizable down payment.

GM Crops Up

Even General Motors is jumping on the easier lending bandwagon. It announced on July 23 that it was planning to buy AmeriCredit, a specialist in subprime lending. This need not be as risky as it sounds. Many subprime borrowers have had only isolated problems with their credit, and financially are fundamentally sound. When these people come up with hefty down payments (say, 20 percent), their default rates are very small. The trick is in differentiating these from the deadbeats.

Nevertheless, some are unhappy with GM's move, and the Los Angeles Times quoted Peter Schiff, the president of a Connecticut brokerage firm, as commenting:

Making questionable loans, with taxpayer money, in order to buttress sales during a recession is not a sustainable business model and is an abuse of the government bailout. GM should focus on selling cars to consumers who can afford the vehicles.

Dealers' Scams to Evaporate?

Congress bent to auto industry lobbying when it excluded dealerships from its recent financial restructuring law. But the White House hopes that competition from newly regulated banks and finance companies can still pull dealers into line.

The Detroit News quoted July 21 Diana Farrell, deputy director of the White House National Economic Council, as saying: "The auto dealer lenders will have a hard time competing..." against the lower fees and fairer practices of regulated lenders.

Hmmm. Maybe. But you might be better off finding auto loans 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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