Car Loans Get Easier


NEW YORK (MainStreet) — It’s been a while – three years, in fact – since auto lenders relaxed their tight-fisted grip on new car loans.

Not only are these lenders putting their “open for business” signs back on their front doors, they’re starting to lend money for new cars to a surprising group: sub-prime borrowers.

Experian Automotive has the details in the company’s quarterly look at the automotive credit industry. Experian concludes that auto loans to consumers with less-than-stellar credit rose 12.7% in the third quarter of 2010, compared to the same period one year earlier.

It seems that across the board, more people with lousy credit were getting green-lighted for auto loans. Here’s a quick breakdown:

FICO Credit range               Rise in loan

620 – 679                               9.79%
550 – 619                               6.61%
Below 550                              1.59%

That’s right, even borrowers with a credit rating below 550 saw an upward spike in auto loans, which represents a sea change in the way auto lenders are assessing risk when handing out loans.

Economists say that the economy is improving, and thus improving the chances of even high-risk borrowers to pay off their car loans.

“Overall, our Q3 analysis shows that there are very positive signs for the automotive lending industry,” said Melinda Zabritski, director of automotive credit for Experian. “With delinquencies down and less money in their portfolios at risk, lenders can be a little less conservative in their lending strategies."

The data do show that borrowers are paying off their auto loans at a higher rate than they were in the heart of the Great Recession. According to Experian, both 30-day and 60-day loan delinquencies fell from Q3 2009, to Q3 2010. The 30-day rate fell surprisingly sharply, by 8.43%, and the 50-day rate fell even more, by 17.39% over the same time period.

The Experian study also points out that average credit scores have fallen for borrowers; and that total loan amounts for new and used cars are on the rise:

  • The average credit score for a new vehicle customer in Q3 2010 fell by six points to 769 from 775 in Q3 2009
  • The average credit score for used vehicle customers in Q3 2010 was 683, down just one point from Q3 2009
  • The average loan for a new vehicle jumped to $25,273 in Q3 2010 from $22,743 in Q3 2009
  • The average loan for a used vehicle jumped to $16,706 in Q3 2010 from $15,729 in Q3 2009

Clearly, auto lenders are loosening their Vulcan death grip on car loans, after three years of tight-fisted, hard-nosed policies.

This could mean one of two things. Car companies, suffering from flagging sales, are getting more aggressive about selling cars, to the point of offering financing help to consumers with a credit score of 550. Or perhaps auto manufacturers really believe the economy is getting better, and more people will pay off their debts.

Either way, it’s good news for consumers. It could even mean a new set of wheels for Christmas.

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