Consumers in the market for a new vehicle might find getting an auto loan easier than it was a year or so ago.
In a recent quarterly analysis, Experian reported that consumer credit scores for auto loans have dropped to near pre-recession levels, and lower interest rates and increased loan terms have improved buying opportunities for consumers.
The average credit score for financing a new vehicle dropped six points to 760, and it dropped four points to 659 for used vehicles. In the first quarter of 2008, credit scores were at an average of 753 for new vehicles and 653 for used vehicles.
The report also found that interest rates were lower year-over-year and loan terms were longer, giving consumers access to lower monthly payments. In addition, there was an increase in the average amount financed, rising by $589 for new vehicles and $411 for used vehicles in the first quarter of 2012.
In the past six months, credit has been generally more available to prime borrowers and borrowers “with less than perfect credit histories,” said Paul Taylor, chief economist with the National Automobile Dealers Association. Interest rates are also extremely low, which has helped more people qualify for a new car loan, he said.
“If the average credit score for auto loans that are being made out there has fallen in recent quarters, then credit is clearly more available to a wider range of customers,” Taylor said.
During the recession, lending was narrowed to those with very strong credit ratings. Subprime borrowers were in the most difficult position for finding credit, he said.
“Banks were willing to lend money only to people who didn’t need it,” he said.
Still, auto loans “performed well” during the recession, compared to home loans, with a much lower default rate.
“That’s one more reason that the recovery of loan availability has been progressing well over recent quarters,” Taylor said.
Banks are being very aggressive right now, said Andy OHarrow, finance manager at Milton Ruben Toyota.
“The banks that are backed by the manufacturer are the most aggressive. They’ll do lower credit scores, better terms and low interest rates. Things have really loosened up, and things are pretty normal for us now,” OHarrow said.
He said that auto loans are not driven as much by credit scores. They’re more structured around the deal, such as the amount of the down payment and length of time for financing.
“Typically, if you’re putting a lot of money down, you’re going to get a lower interest rate. The banks are weighing risk differently. If you’re putting $5,000 down, you’re obviously in a better position than the person who’s not putting anything down,” he said.
Auto loans are more within reach than in the past few years, said Bud Lawrence, general manager at Bobby Jones Ford Lincoln. Lower interest rates correlate with lower payments.
“In some ways it would certainly make it easier to get credit because the customer may qualify better. When rates are so low ... the bank may be willing to loan because the payment fits. They can make it match the customer’s income,” he said.
Brian Winters, general manager at Gerald Jones Honda, said that lending has “loosened up quite a bit” in the past eight to 10 months. American Honda Finance Corp. is offering zero percent interest rates almost across the board, he said.
“We’re seeing a lot of those customers that were having trouble getting approved for credit a year ago suddenly back in the market, and we’re able to get those folks approvals through the lenders,” Winters said.
Lenders are offering better loan terms, such as no money down, said Ronnie Sterling, general sales manager at Thomson Chrysler Dodge Jeep.
“If you’re in a position of inequity, banks are working with you to get in newer cars. A lot more people are tending to get into a new car now than they were four years ago,” he said.