Buying Cars with Really Bad Credit Improves

TransUnion has released its fourth quarter 2012 auto delinquency report that shows a slight increase in delinquencies that still should be seen as good news for car shoppers with damaged credit
Buying Cars with Really Bad Credit Improves
Auto lending to bad credit buyers

Auto loans to buyers with poor credit continued to increase during the fourth quarter of 2012.

Here at Auto Credit Express we interpret this as continued good news for consumers with less than perfect credit. We base this on the fact that for the past two decades we’ve been helping car shoppers with problem credit find those dealers that can give them their best chances for car loan approvals.

During that time we’ve also come to realize that it’s important for these buyers to understand the general lending climate – a topic that’s discussed in the most current quarterly report from TransUnion that covers automotive lending delinquencies during the period from October to December of 2012.

TransUnion fourth quarter report

Earlier today TransUnion released its latest report on automotive lending –dealing with auto loans in the fourth quarter of 2012. These reports, incidentally, are based upon a database consisting of 27 million consumer records that are randomly sampled every quarter. The results, then, should fairly accurately reflect the current automotive lending climate.

According to TransUnion, the national auto loan delinquency rate (borrowers 60 or more days past due) “continued to remain near historic low levels in the fourth quarter of 2012”, although it did rise from 0.38 percent in the third quarter of 2012 to 0.41 percent in quarter four of 2012.

As a comparison, two years ago (the fourth quarter of 2011) the auto loan delinquency rate was 0.46 percent.

“As expected auto loan delinquencies rose slightly in the fourth quarter, though they remain near the all-time record low set in the second quarter of 2012,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “We continue to see increasing auto debt per borrower as the new and used car sales market remains relatively strong.”

Higher risk lending

The report also contained some good news for car buyers with bruised credit:

The share of non-prime, higher-risk consumers (with a VantageScore® credit score lower than 700 on a scale of 501-990) was 32.4%. This is somewhat higher than one year ago (30.6% in Q3 2011), and is significantly higher than the 27.6% observed in Q3 2010. In volume terms, the number of new accounts originated to non-prime consumers increased 20.5% in Q3 2012 compared to Q3 2011. In addition, average balances for the newly originated auto loans increased by 1.66% in Q3 2012 relative to the same period last year, from $18,028 in Q3 2011 to $18,326 in Q3 2012.

“We’ve been observing an increase in sub-prime borrowers in the auto loan space now for several quarters and we do expect this will eventually push the overall delinquency numbers higher,” said Turek. “New loan originations are growing and that has helped the 60 day or more delinquency rate remain low, and we forecast that delinquencies will remain about the same in the first quarter, possibly even dropping slightly.”

TransUnion also notes that this forecast “is based on various economic assumptions, such as unemployment rates, consumer sentiment, disposable income, and interest rates. The forecast changes as the economy deviates from a conservative forecast or if there are unanticipated shocks to the economy affecting recovery.

Our advice

With this report in mind, here is our advice to consumers with questionable credit looking for a car loan:

•    Know your FICO scores as well as the information contained in your credit reports
•    Plan on contributing a minimum of 10 percent down in cash or actual trade equity to your auto loan
•    Keep the loan term as short as possible
•    Buy a subcompact, compact or midsize vehicle and put off considering any other type until after you’ve reestablished your credit.

The Bottom Line

As it stands, car shoppers with credit issues now have their best chances in at least the past four years of getting approved for auto loans.

That having been said, if you’re beginning the credit repair process you should know that Auto Credit Express matches applicants with poor car credit with dealers that can offer them their best opportunities for approved car loans.

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

Posted on February 26, 2013 by in Bad Credit
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