How Do I Get An Auto Loan?

In May 2011 Experian, one of the three major credit reporting agencies, released the results of their quarterly analysis of the automotive credit industry for Q1 2011.  It actually appears it’s a little easier to get a loan in 2011 than in 2010. It indicated an increase in new car loans in the last year to those with less than perfect credit and credit scores. The credit score used in the analysis was Experian’s proprietary credit score which has similar score ranges as FICO.  Experian’s credit score ranges are 330 to 830 and FICO’s range is 300 to 850.

Share of new car loans

The share of new car loans to those with credit scores below 680 increased by 11.1% from one year earlier in Q1 2010.  Those with a credit score of 620 to 679, classified as non-prime, were 10.57% of new car loans in Q1 2011, compared to 9.81% in Q1 2010. Those with a credit score of 550 to 619 considered subprime were 6.11% of new car loans in Q1 2011 and 5.68% a year earlier. Even those below a score of 550, categorized as below subprime, increased to 2% in Q1 2011 from 1.38% a year earlier.

Reasons

According to Experian the reasons for the increase were:

  • Auto loan delinquencies are at their lowest point since Q4 2008
  • 30-day auto loan delinquencies decreased by 7.95% from 2010 to 2.52%
  • 60-day delinquencies decreased 13.45% to .68%
  • Auto lenders loosened their risk tolerance

Average score and loan amount

The average credit score for consumers financing new and used cars decreased from the prior year, while the average loan amount and terms increased. .  The average score for new auto loans was 766 compared to 776 one year earlier.  For used cars it was 663 compared to 665 one year earlier. The average loan amount for a new vehicle increased by $8 to $25,404 and for a used vehicle increased by $397 to $16,636.  The average loan terms increased a month for each loan which was 63 months for new and 58 for used.

These are signs that loans are being extended to those with less than perfect credit.  This isn’t a big increase, but it is indicating an upward trend is moving upward.  Let’s see if this trend continues. Just because the trend is changing, doesn’t mean interest rates are reasonable for auto loans for those with scores below 680. Interest rates could be 18%!   Even if you qualify for an auto loan, you shouldn’t purchase the car unless you can afford it and really need it.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

 

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