The latest report from Moody's points to subprime lenders reducing the number of loans to applicants with the worst credit.
Harder to Get Auto Loans With Terrible Credit?
"How hard is it to get approved for an auto loan if I have bad credit?"
At Auto Credit Express we've spent the last twenty years helping car buyers with credit issues and that's still the number one question we receive from our borrowers. But just because we've been doing this for over two decades doesn't mean it's an easy question to answer.
For one, everybody's situation is different. Secondly, the lending climate is constantly changing as banks, credit unions and, especially, finance companies (that do the bulk of lending to credit-challenged consumers) are continually monitoring the performance of their loan portfolios.
So in many respects the chances of obtaining an auto loan approval with problem credit, at least in part, depends on the current rate of loan delinquencies – a topic that's examined in the latest report from Moody's Investors Service.
US Subprime Auto Loan Delinquencies
According to a new report, "US Subprime Auto Loan Delinquencies, Still Below Post-Crisis Highs, Reflect Typical Credit Expansion", Moody's still doesn't expect losses from high-risk car loans to reach problem levels because current losses are not only below those experienced at the height of the financial crisis, but the level has also begun to moderate.
And while this trend might seem good news to borrowers with credit issues, the reason for the moderation is the fact that lenders are cutting back on loans to those buyers with the worst credit due in part to the number rise of auto loan delinquencies.
Moody's Senior Vice President Mack Caldwell notes that "Subprime auto lenders have already started to rein in lending to weaker credit-quality borrowers. Barring an imprudent expansion in lending to subprime borrowers, delinquencies will not increase to crisis levels."
In a press release discussing the report, Moody's made the observation that "Delinquencies have risen with each full origination year since 2010 but that "In recent months, banks and other non-traditional lenders have started to pull back from lending to subprime borrowers, which has eased pressure on the smaller finance companies that traditionally finance subprime autoloans. With less competitive pressure, lenders can target higher-credit-quality borrowers."
How Credit-Challenged Borrowers can Help Themselves
With fewer high-risk car loans being offered to borrowers, here are some steps that can be taken to increase the chances of a loan approval:
- Know the information in all three of your credit reports
- Know at least one of your credit scores
- Subprime lenders appreciate buyer equity so plan on coming into a loan with at least a 10 percent down payment – even more will increase the chances of an approval
- Keep the loan term as short as possible
- Finance an affordable subcompact, compact or midsize car to keep the monthly payment as low as possible
The Bottom Line
The moderation in subprime auto loans means that high-risk lenders can afford to be more selective. It also means that potential borrowers with less than perfect credit should check their credit reports, know their credit scores and plan on a larger down payment to maximize their chances of success.
One more tip: Auto Credit Express places borrowers with credit problems with those new car dealers that can offer them their best chances for auto loan approvals.
So if you're ready to reestablish your car credit, you can start it now by filling out our online auto loan application.