Archive for the ‘credit’ tag
Auto Loan Restrictions Ease Up
If you have attempted to shop for a new car or truck in the last year and a half, you probably already know that it hasn’t been easy. Buyers with very good credit probably qualified easily. For most car buyers, getting a loan was harder than they expected – regardless of where you went for an auto loan – the dealer or your own credit union or bank. Luckily circumstances are beginning to improve.
How it Got So Bad
The asset-backed securities market provides money for lending. The lenders bundle these loans together and sell them to investors. More loans can be made from the dollars raised in these sales. Just as it always has, the financing pendulum swings back and forth. When lenders get burned, they make the requirements stricter more than reason calls for. Yes, consumers were qualifying for loans they couldn’t pay for – both for cars and homes. It was too easy to borrow. Anybody could see that terms like no down payments and qualifying based on stated income would result in more failed loans. The pool of funds available for car loans dried up when the mortgage loan market crashed. Suddenly investors didn’t want to take a chance on consumer loans. With fewer loans available, only those consumers with super-prime credit – those with credit scores above 730 – could get a loan. Buyers with high credit card balances or credit problems couldn’t get financing.
What Has Changed
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 have changed their habits in ways that will help them qualify for auto loans, as a result of new expectations.
Recent months have seen the relaxing of lending practices. The pendulum has reached its zenith, stopped momentarily, and is now headed back the other way. Borrowers with credit scores between 620 and 730 can now qualify for financing. Even consumers who have income, but also have a foreclosure on their record are being considered.
Car shoppers, too, are responsible for their new ability to get an auto loan. They’re doing what is required to get approved, and their outlook is more reasonable. They’re reducing the balances on their credit cards and other loans, saving up a respectable down payment and working on their credit reports.
It’s still not as easy as it was back in 2007 & 2008. Getting approved won’t be easy for car shoppers with large balances on their trade-ins or poor credit. And they definitely need a healthy down payment. Most lenders will not allow customers to count factory rebates as downpayment funds, although GMAC permits it.
As car dealers see more buyers qualify, they are able to sell more cars. This creates jobs, allowing more consumers to buy cars, homes 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 realistic level. Years and years of data should show the best lending practices – those terms at which new loans are relatively high and loan failures are relatively low, maximizing profit. But we all know that the pendulum cannot easily be stopped.
Written by Hannah Valez. Cadillac Cars Inland Empire Cars
