Auto Loan Restrictions Ease Up
Everybody who has attempted to purchase a new automobile in recent months knows that it’s been challenging, to say the least. Only those with impecable credit scores probably qualified without any trouble. Qualifying for an auto loan presented a challenge for many shoppers – regardless of where you went for financing – the dealer or your own financing institution. You’ll be glad to hear that finally circumstances are starting to change.
Why Things Were So Bad
The asset-backed securities market provides money for loans. Loans are bundled and sold to investors. When investors buy those packages, more funds are available for making loans. 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. Yes, consumers were qualifying for loans they could not pay for – both for cars and homes. Borrowing was too easy. Higher default rates are obviously the direct result of lending practices like zero down payments and qualifying based on stated income. The available funds available for auto loans dried up when the mortgage loan market crashed. Consumer loans suddenly didn’t look like a good bet to investors. The fewer available loans went to consumers with super-prime credit – those with credit scores above 730. Buyers with high credit card balances or credit problems couldn’t get financing.
What’s Happening Now
Two things have changed in recent months. Lenders and investors have become more willing to make loans to consumers with less than perfect credit, so more funds are available. Consumers’ expectations are lower, and they’ve altered their habits in ways that will help them qualify for loans.
The last few months have seen the relaxing of borrowing practices. The pendulum has reached its top, stopped momentarily, and is now going back the other way. Car buyers with credit scores between 620 and 730 can now qualify for auto loans. They are also considering car buyers who have income, but also have a foreclosure on their record.
Their newfound ability to qualify for an auto loan can also be attributed to car buyers’ financial practices. They are doing what is needed to get approved, and their expectations are more reasonable. They are working on their credit reports, paying down their other loans and credit cards and saving up a sizable down payment.
The easy credit of 2007 & 2008 is long gone, though. Car shoppers with large balances on their trade-ins or poor credit won’t get approved easily. And they definitely need a healthy down payment. Rebates don’t normally count as downpayment funds, although GMAC permits it.
Auto dealers can sell more cars when they see more buyers qualify. This creates jobs, enabling more consumers to buy cars, real estate and everything else. As long as borrowers keep making their payments on time, lending requirements will continue to ease. If only they would stop at a reasonable level. Years and years of data should show the ideal lending requirements – those terms at which new loans are relatively high and loan failures are relatively low, maximizing profit. But everyone knows that the pendulum can’t be easily stopped.
Written by Hannah Valez. Nissan Dealers Orange County Bay Area Volvo