Home > Auto Loans > Car Loans Back From The Brink

Comments 0 Comments

TinyCars_Jeremy_Vandel_flickrWhen it comes to car loans, lenders are loosening up, according to new data from the credit bureau Experian. But that doesn’t mean we’ve returned to the heady days of 2006 and 2007, when basically anyone with a pulse could get a loan.

“If you don’t have strong credit, it’s still very difficult to get financing on new vehicle,” says Melinda Zabritski, Experian’s director of automotive credit.

A recent report by Experian explores changes to the auto loan market for the fourth quarter of 2010. More lenders are willing to give loans now than they were this time last year, Zabritski says, partly because fewer consumers are falling delinquent on payments. The rate of people falling 30 days delinquent on their car loans fell from 3.3% in the fourth quarter of 2009 to 2.98% in the final quarter of 2010, Experian found.

The number of repossessions also fell 6% in the last quarter compared to the same period a year before.

[Infographic: How Much is Your FICO Score Costing You on Your Car?]

“It wasn’t really a surprise,” Zabritski says, because lenders have focused so heavily over the last two years on giving loans to people with good credit, who typically have a lower tendency to fall behind on payments.

Still, the rate of change is striking to experts. “I mean, ‘wow’ that’s a really good improvement,” says Zabritski.

That makes lenders a bit more confident to loosen the floodgates, especially to borrowers with lower credit scores. The ratio of all car loans made to subprime borrowers—people with low credit scores —increased almost 25% over the last year, Experian found. And the ratio of deep subprime loans—people with exceptionally poor credit—grew by more than 20%.

If you have credit problems, though, that doesn’t necessarily mean you’re out of the woods. The big increase in subprime loans has more to do with the fact that the subprime market essentially went extinct in 2008 and early 2009, Zabritski says, than with a huge influx of loans to people with bad credit.

[Featured products: Monitor your credit reports and scores]

“Even into early 2010, lending was constricted to the prime consumer,” says Zabritski. “So even now it’s a pretty tight market.”

As the subprime market begins to rebound, expect to see lenders offering better terms for borrowers. As recently as 2009, the average length of a subprime loan (for the lucky few able to get them) was 45 months. By the fourth quarter of 2010 that average rebounded to 56 months, much closer to the length of time that prime borrowers get to repay their loans.

So what does all this mean for the American car industry? Good things, Zabritski says.

“We consistently hear that people in the industry are cautiously optimistic,” she says. “There’s some great product coming out of Detroit, and if there wasn’t demand for those vehicles we wouldn’t see this need for financing.”

Image: Jeremy Vandel, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team