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Poor credit auto loans are within reach

[May 23, 2011.]


Earlier this month, Ohio-based market research company CNW released its latest auto loan survey results. CNW found that, at the beginning of May, the average credit score of those buying new cars was at a five-year low. Those with FICO credit scores below 670 (often chosen as the number that divides prime and subprime borrowers) made up 14.5 percent of all consumers purchasing new light vehicles.

Auto loans for (nearly) everyone

On May 15, CarFinance Capital of California CEO Jim Landy told The Financial Times:

"This [subprime] market has been underserved, and there's growing demand. There is a lot of interest in the sector because the fundamentals are so strong and the market is so large."

Not just new-car buyers with poor credit benefit from more relaxed lending policies. Landy expects roughly 80 percent of subprime customers to buy used cars, which means additional purchasing opportunities for people with compromised credit scores.

Are auto loans for (nearly) everyone a bad thing?

Not everyone thinks extending auto loans to those with poor credit is good. Last month, professional speaker, author and business consultant Dale Furtwengler bashed the practice on his Retail Customer Experience blog. The object of his ire was General Motors. He criticized the company's subprime auto loans, saying:

"To me it's another example of how the leaders of large businesses are clueless about how to grow their businesses profitably. It's not by making sales to people who can't afford what you offer. It doesn't matter if GM charges higher interest rates to these borrowers if they ultimately default on their loans, which many will."

Auto loans and subprime lending

Furtwengler makes an interesting point. There would clearly be significant risks if the intention were to return to the era of "liar loan" mortgages and indiscriminate lending by auto loan and credit card companies. However, most lenders claim that they have learned their lesson, and plan to be much more analytical, calculating and selective in approving subprime loans. It's important that they follow through on their plans because extending credit to those who have no hope of repaying is damaging to the borrower, the creditor and the economy.

However, many believe the U.S. economy can only fully recover when consumer confidence and spending return to normal levels. That probably involves increased consumer credit, including borrowing by those who have unimpressive credit scores. The solution may be lenders able (and willing) to discriminate between those whose credit reports were damaged by short-term misfortunes (unemployment, illness and so on) and those deadbeats who should never be trusted with other people's money in the first place.

Quotes for auto loans

Whatever your credit score, if you're confident that you can now handle credit responsibly, you can find competitive quotes for auto loans online.


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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