Consumer Car Buying Advice Blog

The current state of the American economy is impacting car shoppers all across the nation, affecting buyers with both good credit and bad credit.

Recent CSM Worldwide Study

Here at Auto Credit Express, we came across a recent study by CSM Worldwide, an automotive forecasting company, which dealt with the shrinking pickup truck market segment. And while the study highlighted the declining market in trucks, there was one paragraph that summed up, quite succinctly, the entire U.S. economy:

“Each new shock to the economy, including the return of $4 per gallon gas and turmoil in the financial services industry, further undermines consumer confidence and delays the recovery in overall vehicle sales,” said Charles Chesbrough, CSM senior economist. “But as shocking as today’s headlines are, the real story remains the very weak housing market, high fuel prices, inflation and the limited availability of credit.”

How the Credit Crunch affects you

So there you have it. As much as $4 per gallon gas has affected car sales, the real culprit behind the falling fortunes of the auto companies – especially the domestic brands – is the current high cost of credit. Not only does this impact the manufacturers, but it also directly affects consumers.

A tightening of the credit market means that it becomes more expensive for car companies and banks to borrow money. The domestic automakers have been especially hard hit, because falling car sales (to put it mildly) have caused their credit ratings to drop. This, in turn, makes it more expensive for the auto companies (and their captive finance divisions, in particular) to borrow the funds needed to finance everything from new vehicle programs to consumer loans.

What this means to you, the car buyer, is that there’s a good chance that your next car loan is going to cost you more money, even if you have good credit. If you credit isn’t so good, the situation becomes even more complicated.

Annual Nonprime Survey

Every year, the National Auto Finance Association conducts a survey of non-prime lenders to analyze year-end data. For this year’s survey, conducted by BenchMark Consulting International, 26 companies participated. These companies represented large (100,000 and more accounts), medium (from fewer than 10,001 up to 100,000 accounts) and small (less than 10,000 accounts) lending institutions.

The lender survey showed higher average customer FICO scores than last year for both new and used vehicles. This is a direct result of tighter lending guidelines. The average new vehicle contract score rose by 7 points, while the average used vehicle contract score rose by 5 points. Stricter parameters were also evident in the amount the lenders would finance, which dropped by an average of $279 for new vehicles and $137 for used cars. The tightening of credit was also reflected in the lower number of contracts processed as well as lower loan to value ratios for new vehicles. The lower ratio means that lenders financed a lower percentage of the vehicle’s retail price – meaning higher down payments for the customer and less willingness on the part of the lender to finance customers with negative equity in their current vehicles.

Surprisingly, even though the average financed amount dropped, the number of contracts with extended terms increased. New vehicle contracts with extended terms increased from 85% of loan originations last year to 91% this year. Used car contracts with extended terms rose from 53% last year to 60% of originations this year – a 13% increase year over year.

In a Nutshell

If you have good credit, don’t be surprised if your new vehicle loan costs you more than your last one did. If you have less than perfect credit, expect the same, as well as a closer look at your FICO score and your credit history.

How Auto Credit Express can help you if you have bad credit

At Auto Credit Express, our business is helping you get back on track. We have helped literally thousands of people, with bad, blemished, bruised and tarnished credit, buy cars and reestablish their credit at the same time.

Our web site will help you determine how much car you can afford and, unlike other sites, our toll free number is listed on every page in case you have any additional questions. When you decide to buy a car, our online bad credit car loan application can be filled out in the comfort and security of your own home. For more information, please visit us at www.autocreditexpress.com.

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