Ordinary Car Shoppers Can Find Car Loans Once More
Everyone who has tried to shop for a new car or truck in the recent past knows that it hasn’t been easy. Car shoppers with spotless credit probably qualified easily. Qualifying for an auto loan presented a challenge for many consumers – regardless of where you went for a car loan – the car manufacturer or your own credit union or bank. You’ll be glad to hear that at long last circumstances are beginning to get better.
How The Troubles Began
The asset-backed securities market provides money for lending. The lenders package these loans together and sell them to investors. Cash raised from these sales become available to make more loans to consumers. Just as it always has, the financing pendulum swings back and forth. Lenders make the requirements stricter more than is reasonable when they experience increased default rates. It’s true that consumers were qualifying for loans they could not pay for – both for cars and homes. It was too easy to borrow. Anybody could see that lending practices like no down payments and qualifying based on stated income would result in more failed loans. The available cash available for car financing evaporated when the mortgage loan market crashed. Investors were suddenly much less willing to take a chance. With fewer loans available, only consumers with credit scores above 730 could get a loan. It became impossible for anyone with high credit card balances or credit problems to get financing.
What Has Changed
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. People have changed their habits in ways that will help them get loans, as a result of changed expectations.
Borrowing requirements have relaxed in recent months. The pendulum has reached its zenith, stopped momentarily, and is now headed back the other way. Car shoppers with credit scores between 620 and 730 can now qualify for auto loans. Even borrowers who have a foreclosure on their record but still have income are being considered.
Their newfound ability to obtain an auto loan can also be credited to borrowers’ financial practices. They’re doing what it takes to get approved, and their expectations are more realistic. They are reducing the balances on their other loans and credit cards, saving for a down payment and working on their credit reports.
It’s still more difficult than it was back in 2007 & 2008. Car buyers with poor credit or substantial balances on their trade-ins won’t get financed easily. And a healthy down payment is a must. Factory rebates don’t generally count as downpayment funds, although GMAC permits it.
Car dealers can sell more cars when they see their closing rates improve. This creates more jobs, allowing more customers 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 sensible level. Years and years of data should show the ideal lending requirements – those terms at which new loans are relatively high and defaults are relatively low, maximizing profit. But everyone knows that the pendulum cannot be easily stopped.
Written by Hannah Valez. Infinity Dealers Los Angeles Certified Infiniti Dealer
