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Throughout The Car Industry

Auto Loan Credit Terms Improve

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On: Thu, Sep 2, 2010 at 11:56AM | By: Sherry Christiansen

Auto Loan Credit Terms Improve

Experian Automotive (the institution in charge of collecting and reporting consumer’s auto credit data) has reported for the 2nd consecutive quarter that auto loan delinquencies are declining.  So what does that mean to new car buyers? As lending institutions begin to collect more payments on time, auto loan terms (including rates) improve for all borrowers and credit becomes available to more consumers. This will have a direct impact on the automotive industry as a whole, resulting in increased sales which will subsequently help the economy.

The 30-day delinquency rate for auto loans declined from 3.07 in 2009, to 2.89 in the second quarter of 2010, and the number of 60-day delinquent payments also fell from 0.8 to 0.71.

President of Experian, Scott Waldron, stated: “A drop in delinquencies year over year is a positive sign for both the lending and automotive industries.” Waldren also commented: “The fact that we've seen a drop for the second consecutive quarter is an indication that there could be a light at the end of the tunnel for the economy.”

As loan delinquencies drop, the number of subprime loans that are approved goes up because lenders begin to “loosen credit terms,” according to Experian. In fact, compared to the second quarter of 2009, the number of reported subprime loans that were approved this year was 16.73% as compared to only 16% last year.  Subprime lending is said to have increased in the mortgage industry in the most recent period as well.

But lenders in both the auto loan and real estate lending markets are more cautious these days in their lending practices, implementing higher loan-to-income ratios and scrutinizing new car buyers more closely.

Director of automotive credit at Experian Automotive, Melinda Zabritski, stated: “While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle-risk tiers, this could be a very positive sign for the auto industry, as it could open loans to a wider group of potential customers.”

Another sign that the economy may be improving is that the average credit score for new car buyers has gone from 774 in the second quarter of last year to 772, the most recent reported numbers.

For those who purchased a new vehicle in the most recent reporting period, the average principal loan amount went up by $883 to $25,222.


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