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Bad Credit? Getting Approved for a New Car Loan Has Become Easier

by James M. Flammang on

Car-buyers with marginal credit records are doing a bit better at paying back their loans, and keeping the repo man away. At the same time, more customers with Subprime credit are getting financed nowadays: 41.5 percent of the total, versus a low point of 36.4 percent in 2009.

Those are a few of the results for the final quarter of 2011, as assessed by Experian Automotive. Credit continues to “loosen” on loan originations, said Melinda Zabritski, director of automotive credit for Experian, during her quarterly report on financing trends.

Zabritski noted that average credit scores of car-buying customers have declined since 2009, suggesting lower creditworthiness. Even so, average finance rates charged for credit have fallen in the past year: from 4.8 percent for a new vehicle in 2010 to 4.5 percent in late 2011. Rates for used vehicles, on the other hand, have dropped only slightly in that same time frame.

Experian divides car-buyers with open loans into five categories: Super Prime (folks with the best credit rating), Prime, Nonprime, Subprime, and Deep Subprime. Those in the latter category are the ones who find it hardest to secure a loan in the first place. Looking at risk distribution of all open auto loans, Zabritski found that the number with Deep Subprime credit has dropped: from 15.3 percent in 2009 to 12.6 percent in late 2011. At the other end of the scale, slightly more people with auto loans had Super Prime credit: 38.8 percent (up from 38.1 percent).

Not as many of those debtors are delinquent with their payments, either. Two years ago, 3.3 percent of auto loans were 30 to 59 days behind with payments. By late 2011, that figure for 30-day delinquencies dipped to 2.79 percent. For loans issued by finance companies rather than banks or credit unions, delinquencies are greater but also down: from 6.45 percent in 2009 to 5.35 percent in late 2011. The proportion of 60-day delinquencies also has dropped, from 0.94 percent in 2009 to 0.72 percent in 2011. Zabritski credits the reduced level of auto-loan delinquencies to “such tight originations after 2008,” when the financial crisis developed. “We’re certainly benefiting from that” now, she added.

Repossessions have shrunk too, from 0.71 percent of loans in 2009 to 0.3 percent in 2011.

For finance-company loans, the proportion of repos was 2.47 percent in 2011, versus 2.59 percent a year earlier.

In 2007, leasing accounted for 22.5 percent of new-vehicle financing. A year later, barely 19 percent of financing went to leases. Today, the figure tops 23 percent–but that’s lower than it was in 2010.

New vehicles account for 37.4 percent of vehicle financing, while 62.6 percent of financing goes to used models. Not quite as many people are paying cash for either new or used cars as they were a year earlier.

So, how much are we financing these days? The average is $26,419 for a new vehicle and $17,404 for a used one. Those figures compare to $25,789 (new) and $16,992 (used) a year earlier. So, car prices really have been going up. Average monthly payments are up slightly, to $468 for a new-vehicle loan and $349 for a used-vehicle contract.