Bad Credit? This is the Best Time to Buy a New Car


NEW YORK (MainStreet) — Consumers with less-than-perfect credit will find it easier to get a car loan this year, as the auto industry continues to relax lending standards and use more than a credit score to qualify buyers. From January through October of 2013, new auto loans totaled more than $405 billion, the highest in eight years.

Nearly a third (31%) of those loans were issued to "subprime" borrowers – consumers with FICO credit scores of 660 or below.

"Auto delinquencies have declined to levels last seen in mid-2006, and the strength in the performance of loans booked in the last few years is helping to make credit more widely available to those with higher-risk credit profiles, namely subprime borrowers," says Amy Crews Cutts, chief economist for Equifax, a credit data provider. "The choices consumers are making with the types of cars they are buying have changed in the aftermath of the Great Recession, with a heavy emphasis on value for the dollar."

Year-over-year, the total balance of new loans for the first ten months of 2013 increased 14.7%, while the total number of new loans increased 11.6%, according to Equifax.

"It's clear as we analyze the auto finance segment that auto lenders are doing a great job in accessing risk, managing their portfolios and making credit available to customers who need transportation to get to work or simply want to enjoy some of the great new models that manufacturers are producing," said Lou Loquasto, of Equifax auto finance. "The industry's ever-growing sophistication in using credit and non-credit data to aid decision-making is one of the key reasons for the health of this segment."

Other highlights from the most recent data include:

  • Balances on outstanding auto loans ($859.6 billion), and the total number of existing loans (62.3 million) in December 2013 are the highest in more than five years
  • The total outstanding balance for loans funded by auto finance companies is $442.5 billion, while loans funded by banks, savings and loans and credit unions are at $417.2 billion, a five-year high for both lending segments
  • Serious delinquencies on auto loans funded by finance companies in December 2013 represent 1.88% of outstanding balances, a year-over-year decrease of 13.5%
  • In that same time, serious delinquencies on auto loans funded by banks or other depositories are 0.41% of outstanding balances, identical to December 2012

Subprime borrowers can expect the favorable lending environment to continue through 2014, according to Moody's Investor Service.

"Lenders [will] boost their volumes by moving further down the credit spectrum," a Moody's report dated January 10 says. "Low interest rates, relatively low losses to date and a slowdown in the growth of auto sales will spur lenders to continue to offer credit to weaker borrowers."

--Written by Hal M. Bundrick for MainStreet

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