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More Americans With Bad Credit Are Getting Auto Loans

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As the economy has improved, lenders are increasingly giving auto loans to consumers with low credit scores.

In a review of second-quarter automobile financing, credit bureau Experian outlined year-over-year changes in the market. Overall, outstanding loan balances increased $69 billion from the second quarter of 2012 to about $751 billion.

When looking at the year-over-year risk distribution of the loans that originated in the second quarter, it seems lenders are more frequently approving financing for higher-risk customers.

Though they account for only a sliver of financing on new cars (3.03%), deep subprime loans increased 19.2%. Subprime loans increased 10.63% and make up 10.38% of new loans; nonprime loans increased 4.11%, accounting for 14.04% of new loans.

While new prime and super prime loans decreased slightly, they still make up the majority of new lending. Prime loans make up 14.46% of new financing, and super prime loans account for 58.09%.

Used-vehicle financing followed a similar pattern, with an increase in deep subprime, subprime and nonprime loans, and a decrease in prime and super prime loans. Subprime loans saw the largest increase — up 2.55% — and super prime loans decreased the most — down 2.48%.

A Seven-Year Low

These changes in loan risk distribution coincided with a seven-year low in auto repossessions and 30-day delinquencies.
“Consumers are doing a great job of keeping those loans current,” said Melinda Zabritski, senior director of Automotive Credit for Experian. “A better job than what we saw even pre-recession.”

In fact, the average credit score on a new car loan is lower than it was in the second quarter of 2007. This year, it was 749, down four points from last year and a large change from the peak of 774 in 2009. In 2007, it was 753.

Though not at a seven-year low, the average credit score for someone financing a used car is also down year-over-year, to 660 from 662. That metric peaked in 2010 at 679.

Before getting an auto loan, it’s important to check your credit and get your free credit score using a tool like Credit.com’s Credit Report Card. A higher credit score translates into a lower interest rate on the loan.

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