Auto Credit Still Tight
by Steve Cypher on Wednesday, June 10th, 2009A new study by consumer credit company Experian finds that stricter lending criteria for good credit customers as well as for bad credit car loans has pushed more customers into buying used cars.
Lenders remain very cautious
A new study by Experian Automotive released late yesterday points out a fact that may of us here at Auto Credit Express have understood for quite some time – despite the fact that bright spots are appearing in the economy, lenders have not backed off on the stricter criteria they have been placing on loans.
“Banks, credit unions and captive finance companies appear to have tightened their lending criteria as they look to mitigate risk,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “Loans are still available, but lenders are changing terms. This is pushing some consumers out of the new vehicle market and into the used vehicle market. Some finance companies that specialize in subprime loans have seen their share increase as traditional lenders move away from riskier loans.”
Struggling economy favoring independent used car dealers
The following facts appear in the report:
Used vehicle loans accounted for 68.13 percent of all automotive loans in the first quarter of 2009, up from 64.3 percent of all automotive loans in the first quarter of 2008. Share of loans for new vehicles fell to 31.87 percent in the first quarter of 2009, compared with 35.7 percent in the first quarter of 2008.
Judging by these facts, it’s no surprise that independent used car dealers have been in a growth mode while their franchised brethren are struggling to keep their bottom lines out of the red. According to Experian, these independent dealers saw their share of used car loans – for both good credit and bad credit car loan customers – rise from 31.58% in the first quarter of 2008 to 34.97% in the first quarter of 2009.
Experian also noted that these same independent dealers “typically serve customers with lower credit scores and are gaining share as traditional lenders tighten their loan criteria.”
Delinquencies up, credit scores down
Other findings in the report included:
• Loans 30 days past due were up 11.3 percent year over year in the first quarter of 2009, while loans 60 days past due were up 19.5 percent. Currently, 2.48 percent of all automotive loans are 30 days past due, compared with 2.22 percent in the first quarter of 2008. Automotive loans 60 days past due rose to 0.82 percent from 0.69 percent.
• Consumer credit also has worsened in the past year, with the percentage of consumers who are considered prime decreasing by 2.6 percent. Conversely, the percentage of highest-risk consumers grew by 6.03 percent.
• Minnesota, Connecticut, Wisconsin, Iowa and Massachusetts boasted the highest average credit score for new vehicle loans in the first quarter, while New Hampshire, Connecticut, Minnesota, North Dakota and Wisconsin had the highest average credit score for used vehicle loans.
The Bottom Line
Even though the U.S. economy is showing signs of a possible recovery later on this year, car loans for all but the most creditworthy customers (whose numbers are also on the decline) continue to be difficult to obtain. For those customers looking for bad credit car loans, the landscape continues to be bleak. Higher interest rates, shorter terms and larger down payments continue to be the rule, rather than the exception.
