Auto Loans For Ordinary Buyers Once More
If you've attempted to acquire a new car in the last year or so
, you are aware that it's been challenging, to say the least. The only buyers who qualified without any trouble were those with impecable credit histories. For most car buyers, it presented a challenge - regardless of where you went for an auto loan - the dealership or your own bank or credit union. Luckily things are starting to improve.How Things Got to Where They Were
Money for lending is provided by the asset-backed securities market. The lenders package these loans together and sell them to investors. Funds raised from these sales become available to extend more loans to consumers. Just as it always has, the financing pendulum swings back and forth. When lenders see repossessions, they make the requirements stricter more than is reasonable. It's true that car buyers were qualifying for loans they couldn't pay for - for cars, homes and a variety of other things. Borrowing was too easy. Higher default rates are obviously the direct result of terms like no down payments and qualifying based on stated income. When the market for mortgage loans crashed, the pool of funds for car loans evaporated too. Investors were suddenly much less willing to take a chance. With fewer loans available, only consumers with credit scores above 730 could get a loan. Buyers with high credit card balances or credit problems couldn't get financing.
How It's Getting Better
Two things have changed in recent months. The availability of funds has increased, with lenders and investors willing to make loans to consumers with less than perfect credit. Consumers' expectations have changed, and they've altered their financial practices in ways that will help them qualify for auto loans.
Recent months have seen the slackening of borrowing requirements. The pendulum has reached its high point, paused, and is now going back the other way. Car buyers with credit scores between 620 and 730 can now qualify for financing. Even borrowers who have a foreclosure on their record but still have income are being considered.
Their newfound ability to get a car loan can also be attributed to consumers' financial practices. They are doing what is required to qualify, and their outlook is more reasonable. They are reducing the balances on their other loans and credit cards, saving up a sizable down payment and improving their credit histories.
It's still not as easy as it was back in 2007 & 2008. Getting financed will be challenging for those with large balances on their trade-ins or poor credit. And they definitely need a healthy down payment. Factory rebates don't typically count as downpayment funds, although GMAC permits it.
Dealerships can sell more cars when they see their closing rates improve. This creates more jobs, enabling more consumers to buy cars, houses and a variety of other products. Lending requirements will continue to ease as long as borrowers keep making their payments on time. If only they would stop at a practical level. Years and years of data should show the best lending requirements - those terms at which the largest number of people can qualify and defaults are relatively low, maximizing profit. But everyone knows that the pendulum cannot be easily stopped.
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