Most recent analysis from ALG points to lower used car prices that could make financing a used car more affordable even for credit challenged car buyers
Used Car Prices
At Auto Credit Express we realize that most borrowers with bad credit will end up financing a used car. This isn't necessarily a bad thing because today's used cars, because they're of higher quality, will last longer than ever before. The good news is that for these consumers with credit issues, it now looks like it might be a good time to begin the buying process.
That's because analysts from ALG, a division of TrueCar, say that "a wave of newer vehicles has started to flood the secondhand market and will gradually bring resale values in line with what they were before 2008's economic downturn."
Prices According to ALG
According to the ALG report:
Due to historically poor sales years from 2008-2012, as well as 2009's "Cash for Clunkers" program that took nearly 700,000 vehicles off U.S. roads, used-vehicle supplies have been limited. However, ALG estimates that June 2014 marked the lowest number of used vehicles available for sale (which also translated to the highest prices) and that the trend is shifting.
Putting it into hard numbers, ALG forecasts that by 2017 the average new vehicle will retain 49.4 percent of its value after three years, as opposed to the average 54.6 percent retention value through June 2014. That same growing supply of used cars should return the industry to a 46 percent 3-year average residual value by 2019 – the same percentage that it was prior to 2008.
What Problem Credit Buyers Should Do
While this is good news for used car buyers with credit issues, people shopping for auto loans with problem credit still need to keep a couple things in mind:
- While high-risk lending continues to improve and interest rates from subprime auto lenders are lower than in recent years, nearly all of them are still asking for down payments of 10% or $1,000 (whichever is less) in cash or real trade equity.
- With more customers with weak credit than ever before, subprime lenders will continue to be selective.
Taking ALG's report into consideration, applicants with credit issues can increase their chances of an approval by:
- Knowing what's contained in their credit reports and at least one of their FICO scores.
- Choosing an affordably-priced car with a monthly payment below 10% to 15% of their gross monthly income (the lower the better).
- Realizing that while a 10% down payment in cash or real trade equity is usually the minimum amount required, 15% or more will typically increase the chances of auto loan qualification.
The Bottom Line
With used car prices projected to drop over the coming months, now might be a good time to consider applying for a car loan.
One more suggestion: Auto Credit Express helps applicants with car credit challenges find those dealers for their best opportunities for auto loan approvals.
So if you're ready to take the next step, you can begin by filling out our online car loan application.