Bad Credit Auto Loans On The Rise

Today, more and more consumers had bad credit. Auto loans historically were very tough to secure for people with bad credit. Today that’s not always the case.

Many more lenders today are willing to offer car loans to people with bad credit. Mid level credit scores – those people who have FICO scores in the 500′s and low 600′s accounted for about 40% of all auto loans during the third quarter of 2011. That’s an increase from prior years. This is clearly a sign that lenders are easing their lending requirements again in order to increase the number of loans that they are willing to make.  This may seem like a bit of a contradiction. Typically you are hearing that lenders are unwilling to make too many loans. They are especially careful about making loans to people who have bad credit scores. However, antisocially, small sized loans (like car loans) are the first loans to ease their lending requirements, thus allowing people with less-than-optimal credit scores to get a car loan.  This appears to be the case now.

Not only is the number of loans increasing, but the size of new car loans is increasing as well. This may be a result of prices increasing on cars, or it may be a result of people not putting down as much money for down payments, or both. The size of new car loans has increased by about $600 to slightly less than $26,000.

Interest rates on car loans has decreased considerably this year. Last year, lenders were charging about 6.2% for a five year (60 month) auto loan. Today, borrowers are able to secure the same type of auto loans for about 5.2%. In fact, many auto financing companies are offering promotional deals with much lower interest rates. Some of those lenders are only charging 2% or even less – some are offering zero percent financing on auto loans as an enticement.

Clearly this is a sign that auto loans are not just for people with good credit these days. Bad credit auto loans are definitely on the rise, thus making auto loans available to a much greater audience. You can read more about bad credit auto loans from yesterday’s article on SmartMoney.com (http://blogs.smartmoney.com/advice/2012/02/01/looser-credit-standards-boost-car-sales/?link=SM_spend_ls4e)