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The Specter Of Bad Auto Loans Is Slowly Making A Comeback

By Blake Z. Rong | July 23, 2012
Now that the recession's gone from being a genuine disruption to a election-year talking point, banks and lenders are making it easier to get a car loan with less-than-decent credit. It's good for sales, but risky for the future: it's the return of subprime loans, loans targeted at people with a credit score—less than 640—that's less than average, and one of the major reasons why we got into the recession of 2008 in the first place. With 850 being the most sterling credit score, the average score for new car buyers could fall as low as 750, according to credit reporting firm Experian—that's the same rate in the first quarter of 2008, before the housing market collapsed into itself. "There's a lot of lenders now that are into the subprime business," said Jody Lee, the sales manager at a Chevrolet dealer. "What used to be a good score at a 650 or 700, now 550 is a good score." Restrictions are loosening up drastically from even four years ago, at the worst of the recession. Experts believe that the levels of subprime car loans won't return to pre-2008 levels—that said, a poll of 192 banks suggests that subprime car loans will carry the financial sector through the year. And the market has seen this growth reflect through explosive sales: last year saw the highest car sales since 2008. That record should be smashed this year as an estimated 14 million cars are expected to drive off dealer lots this year. Americans spent $52.5 billion on buying or paying off cars, 49 percent higher than during the darkest days of the recession. And with that comes the specter of repeating our same mistakes, and that thing that one guy said about being doomed to repeat history, and such. What are these consumers paying? The industry's APR has been climbing just perceptively since January, but according to Communicating Arts Credit Union, many subprime customers are paying a whopping 25 percent interest rate. The number of people with "less than desirable"—read, lousy—credit raised 11.4 percent in 2012, meaning that there will be a lot of people overpaying for their new cars. And, of course, there's the possibility of many defaulting on their vehicles, with the downward spiral of debt dragging many into a Catch-22 of worsening credit scores and little way out. Consumers looking to finance a new car need to realize that the possibility of refinancing is one way to prevent this situation, and to avoid shady lenders who bank on your not reading the loan contract. Otherwise, prepare to end up on an episode of Operation Repo. Source: Detroit News
 
1 comments
Chuck
Chuck

Remember, the used car market is very strong, much stronger than new car market. If a new car is repo'd then there is a strong market for that car on the used car lots. That's a win win for the dealers. If 20% is required as down payment that would cover the 1st year's depreciation in most cases.

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