The good news for credit challenged car buyers is the latest report from Equifax that shows subprime lending growing in 2014
Good News for Bad Credit Car Financing
Here at Auto Credit Express we’ve spent the last two decades helping subprime car buyers. During that time, experience has taught us that it’s important these consumers understand the current lending climate – something we usually glean from the latest lending reports from TransUnion, Experian and Equifax.
Equifax Credit Trends Report
On July 24th in a press released titled “Auto Loan Balances Hit All-Time High Mid-Way Through 2014,” Equifax reported that “the total balance of auto loans mid-way through 2014 is $902.2 billion, a record high and an increase of more than 10% from same time a year ago. In that same time, the total number of auto loans outstanding is more than 64 million.”
“Auto lending continues to thrive, accounting for more than fifty percent of all new non-mortgage lending through April of 2014,” said Dennis Carlson, Deputy Chief Economist at Equifax. “Lenders are responding to record low delinquencies by offering great rates and terms, while consumers are responding to the improving economic conditions by making the decision to purchase newer vehicles. Additionally, subprime lending has grown across all sectors in 2014. This is good news as a fully functioning second-chance market is essential for a healthy economy.”
- Serious delinquencies on auto loans remain near all-time lows, representing less than 1% of total outstanding balances for the third consecutive month
- The total balance of new credit originated for auto loans year-to-date in April is $163.5 billion, the highest since at least 2005
While this is certainly good news for car buyers with credit issues, these consumers still need to understand a couple of important points:
- Although subprime auto lending is in good shape and interest rates remain comparatively reasonable, nearly all lenders still require down payments of 10% or $1,000 (whichever is less) in cash or real trade equity.
- With more buyers with low credit scores in the market, these high-risk lenders – especially dealerships that deal with bad credit – can be very selective during the approval process.
With that in mind, applicants should follow these tips:
- Know what’s in your credit reports and at least one of your credit scores.
- Choose an affordable vehicle with a monthly payment that is, at most, 10% to 15% of your gross monthly income (the lower the better).
- High-risk lenders like in house car dealers love equity so the higher the down payment, the better. Not including rebates or dealer cash, 15% or more will typically increase the chances of a loan approval.
The Bottom Line
The current lending climate for consumers with problem credit is the best it’s been since before the Great Recession. But while now is a good time to buy a car, buyers need to realize that using a large down payment and picking an affordable vehicle will maximize their chances of successfully reestablishing their credit.
One more tip: Auto Credit Express matches people with credit difficulties to select new car dealers that can offer them their best opportunities for auto loan approvals.
So if you’re ready to reestablish your credit, you can begin now by filling out our online car loan application.
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