Auto Lending Eases
Auto Lending Eases
Auto lending eases as banks maintain a tight fisted approach to mortgage lending.
Lenders seem to be adopting the philosophy that auto loans with an average rate of 4.46% on a 5 year loan are an attractive and safe investment. Many borrowers opt for 6 or even 7 year car loans. Lenders have found that borrowers in financial trouble tend to skip mortgage payments before skipping car payments. Borrowers under stress to decide to make one payment or another when they can’t make both are very aware that it is much easier to seize an auto than it is to foreclose on real estate. Auto lending eases as lenders and lessors factor this in.
Finance companies with money to invest have also scaled back credit lines on revolving debt such as credit cards while easing requirements for sub-prime auto loans. Your FICO score as used by the auto dealer will be the industry tailored “Auto Enhanced Score.” This is a specially tailored score used by auto dealers that takes into account your track record on auto payments, repossessions and other circumstances special to your likelihood to pay your car loan. This could vary from your normal FICO score by +or- 15-25 points.
New Auto Loan and Your Credit Score
A new auto loan may hurt your score in the very beginning because of the new inquiry and the lowering of the average age of your accounts. As with any installment loan it also affects your loan balance to available credit ratio to a lesser extent than credit card debt does. It will help you in the long run if you handle it responsibly, thereby proving you can handle installment credit as well as other kinds of credit. Of course this will also improve your future auto enhanced score if you are confident enough in your future and the time comes to upgrade your ride.
Pent Up Demand
Experian, one of the 3 credit reporting agencies, says the age of the average vehicle on US highways has passed 11 years. The percentage of cars being junked is at record lows as pent up demand builds. Auto dealers say they are selling parts now that few cars ever lived long enough to need. Looks like there is a lot of new business to be had for those willing to take the chance on borrowers with less than stellar credit histories. Lenders refer to this group as “sub-prime” borrowers.