Latest report from Equifax shows auto loans at their highest level in six years
Understanding Bad Credit Lenders
Consumers with bad credit will be pleased to know that the latest findings from Equifax not only show that the auto loan sector is growing, but that serious delinquencies are also declining – which means that subprime lenders may not be cutting back on new loan originations after all.
Consumer Credit Trends
On August 28th, Experian released the latest data from its National Consumer Credit Trends Report. According to Equifax Chief Economist Amy Crews-Cutts “The rebuilding of America’s credit continues. The latest data shows broad based increases in both the total number and total dollars of new loans originated.”
Ms. Cutts went on to state that, “This reflects the steady improvement in the economy, but at the same time also shows how fickle consumer demand for new credit is this late into the recovery. We’re only now exceeding previous highs in the auto lending sector while balances on credit cards remain well-below pre-recession highs despite rapidly increasing interest in new cards.”
In addressing auto loans, this is what the report had to say:
- The total number of new auto loans originated between January and May 2014 is 10.4 million, an increase of 11.9% versus the same period a year ago and a six-year high
- Total auto balances outstanding grew to $912 billion in July 2014, a 10.3% increase over balances in July 2013 and a new record high
- Auto loan serious delinquencies, defined as loans 60+ days past due, in July 2014 stood at 1.0% as a share of balances and marked the twelfth consecutive month of year-over-year declines, falling 9.5%
Consumers with Credit Issues
Considering this latest information, it could have the following effects on car loans for people with low FICO scores:
- Unless something drastic happens, it appears that auto lending for people with poor credit will continue to be strong, although the interest rates for most high-risk auto loans won’t be dropping (and, in fact, could go up) and down payments will still be required by most near- and below- prime lenders.
- With the number of credit-challenged borrowers greater than ever, subprime lenders can continue to be selective.
Despite those challenges, buyers with credit issues can increase the chances of an approval by:
- Knowing their credit scores and being familiar with the information in their credit reports.
- Keeping the payment to income ratio low by choosing a vehicle with a monthly payment of no more than 10% to 15% of their gross monthly income (the lower the better).
- Reducing the loan to value by coming up with a large down payment – the higher the better. Not including rebates, customer or dealer cash, 15% or more will increase the chances of an approval.
The Bottom Line
Subprime lenders are continuing to increase their loan portfolios, but with the number of applicants at an all-time high, they can continue to be choosy about approvals. Borrowers can increase their chances of an approval by understanding their own credit situations as well as keeping PTI and LTV values low.
One more tip: Auto Credit Express specializes in matching consumers with problem credit to those new car dealers that can offer them their best chance for auto loan approvals.
So if you’re ready to reestablish your good credit, you can begin now by filling out our online car loan application.
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