Getting a bad credit loan to buy a car is several times harder than it was two years ago. Image from Flickr.
Recent statistics from the car-lending industry are showing that it is easier to get car loans with bad credit. While lending is still slow for borrowers at every credit tier, it is improving. Lenders are also exploring alternative lending options that are helping expand available credit.
Drop in lending installment loans
During 2008, the amount of lending of installment loans to customers with bad credit dropped off a cliff. Usually, the approval rate for instant loans for autos hovered between 60 and 90 percent, depending on credit rating. In 2009, personal loans given to borrowers with bad credit for auto purchases dropped to 5 percent. The skittish market combined with lack of available credit meant that very few lenders were willing to provide loans to bad-credit borrowers. Even borrowers with good credit only had a 70 percent chance of getting an auto loan.
Effect of auto lending
Many financial industry watchers are keeping a very close eye on auto lending — and for good reason. The auto industry accounts for about 4 percent of the U.S. economy. More than a quarter-million auto industry jobs have been lost in just the last three years. In short, with fewer cars sold, more jobs are lost. The auto industry is also seen as a bellwether for the U.S. economy.
Improving lending options
For borrowers who are looking to buy a new vehicle, there are growing options for quick loans. Many dealerships and lenders are looking to higher down payments and higher value trade-ins. Incentives such as zero interest are also propping up auto sales. Regional and local banks, as well as specialty financiers are all increasing the number of loans offered to all levels of borrowers. Subprime borrowers, though, are still facing a tough lending market. Just two to three years ago, there was a 60 percent chance of a “subprime” borrower getting an auto loan. Today, the rates are sitting around 9 percent — and very slowly increasing.
