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Cheap auto loans--more reasons to think they may not last

[Jan 17, 2011.]


Auto loans driving car sales

The Detroit Free Press (a newspaper that knows a thing or two about the motor industry) was in a celebratory mood Jan. 9 when it reported forecasts of growth in vehicle sales this year. The firm of J.D. Power and Associates expects Americans to buy 12.8 million cars and light trucks in 2011, up from 11.6 million last year, and 10.4 million in 2009.

The driver behind much of that growth is likely to be the continuing availability of relatively cheap auto loans. The Free Press quoted Jeff Schuster, a senior executive with J.D. Power, as saying: "...consumers who want to take out auto loans are likely to succeed in 2011, continuing a trend that took off slowly in the summer."

Cheap auto loans widely available

A week after that report, the Free Press ran another story about just how inexpensive auto loans currently are. It also explained why banks and finance companies are suddenly so eager to lend to car buyers.

Obviously, investors hate having money that's earning a small return, but there's little opportunity to increase yields in the mortgage and credit card markets where activity remains low. However, there's considerable demand for auto loans that's been building up over the last few years because borrowing for many has been difficult or impossible. Today, car finance is one of the few consumer credit growth areas.

Better yet from a lender's point of view, borrowers are less likely to default on car loans than other credit agreements. People with financial difficulties may skip payments on their plastic or home loans, but few want to risk losing their vehicle to the repo man.

Troubling signs?

However, the future for auto loans is far from certain. The American Bankers Association published Jan. 11 its Consumer Credit Delinquency Bulletin for the third quarter of 2010. And this found that some forms of auto loans were showing heightened levels of delinquent payments.

Worse, The Daily Telegraph, a London-based newspaper, reported Jan. 17 predictions from PriceWaterhouseCooper, the accountancy firm, about UK interest rates. These said that the average family in Britain faced hikes of between two and three percent over the next few years, and that that would mean each household finding an additional £1,800 (about $2,850 at the time of writing) a year just to cover the increases.

Now, the British economy is very different from the American one, and you can't be sure that rates in one will shadow those in the other. But there are signs that borrowing on this side of the Atlantic could become more expensive, and those predictions might just become a reality here too.

If you'd like to take advantage of today's low rates and wide availability while you still can, why not find auto loan quotes 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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