In the latest attempt to get the economy on track the Treasury Department announced a new program to increase liquidity in the consumer loan arena.

New programs designed to expand consumer lending

In an announcement this morning, Secretary of the Treasury Henry Paulson announced that the government would introduce two new programs that will provide $800 billion in an effort to thaw the consumer lending market.

According to Paulson, key consumer markets such as student loans, auto loans and credit cards came to a virtual halt in October. The new programs are aimed at injecting liquidity into these markets “in order to support lending to consumers and small businesses which is vital to our economy.”

Current Market Conditions

Here at Auto Credit Express, gauging the retail car market has been especially difficult during the last three months. While many dealers say they have had little or no problem getting their customers financed, they blaming their sluggish sales on a lack of floor traffic – the customers just aren't coming in to buy cars. On the other side of the fence are those dealers that say they can only seem to get a third of their customers financed. These car dealers blame the banks for tightening credit standards that shut out customers that would normally be able to finance a vehicle purchase.

The reality may be somewhere in between these two arguments. While banks have tightened standards, there are many alternative lenders that would be happy to finance many former prime customers that are now near-prime buyers. At the same time, if customer perceptions can be changed with the infusion of new capital into the lending markets, those who have stayed away from the market fearing that they would be unable to obtain a loan may be persuaded to come back into the market and visit a new car showroom.

How the new program will affect car loans

If you were putting off buying a new or used car because of the current lending climate, the Treasury Secretary's announcement this morning is certainly a step in the right direction. By injecting $200 billion into the asset-backed securities market, the government's latest step will, in Paulson's words help “millions of Americans find affordable financing for their basic credit needs.”

The Bottom Line

Here at Auto Credit Express, we support the latest move by the Federal Reserve and the Treasury Department to free up the credit markets so that consumers have access to affordable financing.