When consumers want to obtain financing to cover the cost of buying a new or used automobile, banks are now more willing than they were a year ago to extend loans to those with lower credit ratings.
Auto financing extended to consumers with nonprime, subprime and deep-subprime credit ratings accounted for a greater portion of the total market in the third quarter, for both new and used vehicles, according to the latest State of the Automotive Finance Market, issued quarterly by Experian Automotive. At the end of September, loans for these troubled consumers climbed to 24.84 percent of all those issued for new cars, and 54.43 percent for used ones. That’s up from 21.87 and 51.6 percent, respectively, in the third quarter last year. This is a trend we highlighted earlier in the year as well.
“With leasing showing a continued upward trend, and lenders increasing their appetite for risk, consumers were in a good position to obtain a vehicle during Q3,” said Melinda Zabritski, director of automotive credit at Experian Automotive. “Expanding loans to lower-risk tiers opens the market for more car shoppers, while an increase in leasing means it is easier for consumers to get more vehicle for a lower monthly payment. Both of these trends are positive signs of a strong and recovering auto finance market, which ultimately benefits the consumer and the entire auto industry.”
Now, the average credit score needed to obtain financing for a new vehicle stands at 755, down from the 763 observed in the same quarter last year, the report said. Similarly, requirements for purchasing used cars slipped to an average of 668 from 676 in 2011. Further, the value of the loans being issued for these purchases rose as well. To see if your credit score would meet the requirements, try our free Credit Report Card, which lets you know what part of your credit report is holding you back.
And even as lenders made riskier and larger bets on a greater number of subprime consumers, instances of late payments continued to fall, the report said. Short-term, 30-day delinquencies slipped to just 2.78 percent of all balances, down from 2.81 percent on an annual basis. Longer-term 60-day delinquencies also fell, to 0.71 percent of loans from 0.74 percent. Both were the second consecutive annual third-quarter declines in those categories.
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Lenders have generally been more willing to extend credit to those with rockier borrowing histories as the economy as a whole has improved, but experts believe that there must at some point be a bottoming out at which they cannot allow standards to exceed those seen prior to the recession.
Image: Eva Rinaldi, via Flickr