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How Hard Is It to Get Approved for a Car Loan

Latest report from Experian Automotive shows a rise in thirty and sixty day auto loan delinquencies and repossessions from finance companies that typically loan to customers with problem credit

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Car buyers searching for online auto loans should be aware of the latest report from Experian Automotive study that shows finance company loans to consumers with bad credit experienced an increase in 30 and 60-day delinquencies during the first quarter of 2013.

Here at Auto Credit Express we don’t see this as good news but we’d also like to point out that the same report also contained some encouraging information for credit-challenged consumers. We should know, because we’ve spent the past two decades helping car shoppers with questionable credit find those new car dealers that can offer them their best chances for auto loan approvals.

From time to time we also field questions from applicants including, “How hard is it to get approved for a car loan?” The fact is that every applicant’s situation is unique. It also has a lot to do with the general lending climate – something addressed in the latest report from Experian Automotive.

Experian Automotive report

The May 14, 2013 report begins with the headline, “30- and 60-day delinquencies and repossessions increase but remain below recession-level highs.”

It then goes on to state that “30-day auto loan delinquencies rose 1.3 percent, 60-day  delinquencies increased 12.4 percent and repossessions rose 16.9 percent when compared with the previous year.”

The report also noted that “automotive repossessions jumped 16.9 percent, going from 0.43 percent in Q1 2012 to 0.50 percent in Q1 2013. While repossession rates for banks, captives and credit unions are all down year over year by as much as 14.9 percent, rates for finance companies increased by 52.1 percent. In spite of the increase, overall repossession rates are still relatively low when compared with the peak rate of 0.71 percent in Q1 2010.”

“Obviously, we never want to see a rise in delinquencies or repossessions, but when you compare the current findings with previous years, they are still lower than the recession-level rates,” said Melinda Zabritski, Experian’s senior director of automotive credit. “As we continue to move forward, we should start to see more increases as some of the subprime loans coming onto the books begin to deteriorate. However, one thing most lenders will agree upon is that today’s subprime borrower is less delinquent than those in the past.”

Other information

The report also found that:

• Total dollar volume of automotive loans grew by 9.6 percent in Q1 2013, reaching $726 billion, compared with $663 billion in Q1 2012
• Banks increased loan portfolios by $20 billion, finance companies by $18 billion, credit unions by $14 billion and captive finance companies by $12 billion

But if you fall into the higher-risk category you should also be aware of the fact that subprime lenders, noting the increase in repossessions, will probably be continuing to exercise caution when approving loan applications.

Knowing this you might consider following these tips:

• Know what’s in your credit reports as well as your credit scores.
• Choose an affordable small or mid-sized car and with a payment that is no more than 10% to 15% of your gross monthly income (the lower the better).
• With lenders continuing to be cautious while looking for lower LTV ratios, the higher your down payment, the better it will look. Not including new car rebates or dealer cash, a down payment of 15% or more will increase your chances of an approval.

The Bottom Line

Although lenders are increasingly willing to work with people with poor credit scores, they are balancing this fact by requiring that buyers have actual equity (cash down, trade equity) in these loans.

One more thing buyers with credit problems should know: if you’ve been turned down for a conventional car loan, it doesn’t mean the only option is a BHPH dealer. That’ because Auto Credit Express specializes in helping applicants with car credit issues find dealers that can give them their best chances at approved auto loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loans application.

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