Car Financing Requirements Loosen
Any person who has attempted to obtain a new automobile since the economy has slowed down knows that it hasn’t been easy. Car shoppers with near-perfect credit histories probably got a loan easily. Qualifying for an auto loan presented a challenge for many consumers – regardless of where you went for financing – the car manufacturer or your own financing institution. The good news is that at long last circumstances are beginning to change.
How The Troubles Began
Lending money is supplied by the asset-backed securities market. The lenders package these loans and sell them to investors. Money raised from these sales become available to extend more 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. It’s true that consumers were getting loans they could not afford – both for cars and homes. It was too easy to get a loan. Everybody could see that terms like zero down payments and qualifying based on stated income would result in more failed loans. When the market for mortgage loans crashed, the available funds for auto financing dried up too. Investors were suddenly much less disposed to take a chance. With loans scarce, 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’s Happening Now
Recent months have seen two major changes. Lenders and investors have become more willing to make loans to consumers with less than perfect credit, so more funds are available. Consumers’ expectations have changed, and they’ve altered their behavior in ways that will help them get auto loans.
Recent months have seen the easing of borrowing requirements. The pendulum has reached its top, stopped momentarily, and is now going back the other direction. Lenders are again offering financing to prime and near-prime car shoppers – those with credit scores between 620 and 730. They are also considering borrowers who have income, but also have a foreclosure on their record.
Consumers, too, are responsible for their renewed ability to qualify for financing. Their outlook is more realistic, and they’re doing what is needed to get approved. They are saving for a sizable deposit, improving their credit reports and paying down their credit cards.
It’s still more difficult than it was back in 2007 & 2008. Getting approved won’t be easy for consumers with poor credit or large balances on their trade-ins. And they definitely need a healthy down payment. Most finance companies will not allow customers to count factory rebates as downpayment funds, although GMAC allows it.
Dealers can sell more cars when they see their closing rates improve. This creates more jobs, enabling more people to buy cars, real estate and everything else. As long as borrowers keep making their payments on time, lending requirements will continue to relax. If only they would stop at a reasonable level. Years and years of data should show the best lending requirements – those terms at which new loans are relatively high and defaults are relatively low, maximizing profit. But we all know that the pendulum cannot easily be stopped.
Written by Hannah Valez. Infiniti Cars Honda Accessories Duluth