Easier access to credit has fanned a new flame into the auto loan business and auto loans are on the rise, the highest in 26 years. Many car dealers and financial lending institutions that process auto loans ultimately have the loan provided to them by bonds backed by auto loans financing .
The market now has little semblance from last summer when auto dealers had a hard time sourcing funding for loans, as bond backers were in financial disarray at the apogee of the financial crisis. AmeriCredit, one of the biggest players in the auto business is providing about $22.9 billion in auto loan backed bonds to fund car sales, a huge difference from the $13 billion that was made available last year. Such large backing is the apotheosis of the new market, as financial lenders release their fist from credit rules.
This past March the company sold over $200 million of bond backed for car loan, mainly for customers with a less than 600 credit score - or subprime lenders. This month, May 13, AmeriCredit sold an additional $600 million in auto loan backed bonds.
The company categorizes subprime borrowers by using some of the same variables that are used to quantify FICO scores. Normally, the company’s auto loan approval rate hovers around 20% but with the loosening of credit rules, due to positive assumptions about the future, that rate is now 35%. The company approved about 34,800 new and used automobile loans in the first quarter of this year, an almost 200% increase from last year.
Companies like Toyota and Honda, which offer their own in house financing are offering 0% auto loan on most vehicles and are dealing with bonds backed by auto loans in the billions of dollars
Bad Credit Suprime Loans
Auto loan financing has seen a marked improvement, especially for bad credit car loans. Roughly $66 billion in bonds buttressed by auto related financing were sold in 2009, more than 30% above 2008 numbers. These improvements has helped auto dealerships around the country to rebound.
With the credit horizon brighter than before and the dark financial clouds of the credit crisis withering away, automakers have ramped up their efforts to rake in profits from financing. GM is now considering buying back GMAC (now Ally Bank), its once financial arm before the credit crisis.
Chrysler in also in talks with Santander Consumer USA Inc to provide loans to subprime buyers. Chrysler observers that about 20% of its customers are below prime, meaning their credit score is below 650. The credit crisis has created an increase number of people with scores under prime and Chrysler believes that many of them are good, hard working Americans who deserves a second chance. The company thinks that its relationship with Santander could yield an addition of 2000 units sold a month.
What Subprime Borrowers Can Do
Auto dealers will go at great length to make the sale. They are in business to make money and they will find a way to help you as long as they can make a decent profit. So when you visit the dealership, ensure that you have all the documents required: proof of work, resident address, drivers license, credit report (in case the dealership says that your credit score is lower than what it is), insurance card (if you are trading in a vehicle).
Also, dress clean and professionally. Looks can deceive, but looks also hinder your progress.
Ask the dealer about special automaker coupons and deals that can be passed on to the customer.
Offer to put a decent amount down on the loan or a trade in. If you are offering a trade-in, make sure that the vehicle is clean and recently service, as the look and sound of your car could negatively affect your bargain power.
With more than 20 percent of people qualifying for a bad credit car loan now is the time to take advantage of looser credit rules for car loan to get good deals in APR