Cheap auto loans -- more people are accepted

[Aug 16, 2010.]

 

Cheap auto loans getting cheaper

On August 6, the Federal Reserve published its statistical release of consumer credit data for June 2010. It showed that the average interest rate for 48-month auto loans for new cars was the lowest it's been since at least 2005, the earliest figure shown. In fact, that rate was 1.5 percentage points lower (that's 19.6 percent cheaper) than the high set in 2007.

Perhaps partly in response to these cheap loans, consumers borrowed 2.4 percent more from auto finance companies in June than in May, which itself had shown an increase on April. These figures are made more extraordinary by the fact that most other forms of credit shrank in June.

Auto loans industry booming

It's not just individual consumers who are benefiting from this. Lenders and car makers are also seeing their fortunes reverse. New vehicle sales were up in July. Earlier this month, the Wall Street Journal reported that AmeriCredit -- the company that General Motors recently said it would acquire -- had seen its loan originations top $900 million in the fourth fiscal quarter, up from $175 million during the same period in 2009. Comparing the same two quarters, its charge-offs (debts that it had passed to collection agencies because it regarded them as uncollectible) fell from 7.1 percent to 4.5 percent, and both short- and long-term delinquencies were also down.

It's been a similar story for Capital One. Its July charge-off and delinquency rates for auto loans also declined, according to an August 16 report from ABC News.

Dealerships and auto loans

It's a recurring theme of this blog that consumers face a real possibility of being ripped off if they source their car credit from dealers. Now, it seems, MarketWatch, a Wall Street Journal website, is taking up the story.

It published an audio file August 9 in which the presenter, Steve Potisk, interviewed an expert. The latter pointed out how frequently dealers receive a quote from a lender for a particular customer with an interest rate of, say, 6 or 7 percent. The dealer then tells the customer the finance will cost 9 or 10 percent, and pockets the difference. Of course, not all dealers do that, but it's difficult to tell the honest from the dishonest, and the practice is widespread.

The expert went on to advise those who find themselves with similarly bad deals to refinance. It's easier than you may think.

Avoiding dealer rip-offs

One way to avoid such rip-offs is to find a competitive finance quote here before you go anywhere near a dealer's lot. If he or she can beat the quote, then fine. Otherwise, you know you have the financing to buy the car without paying inflated rates.

 

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.