Auto Loans, Economic News

Those with Low Credit Scores Again Able to Get Loans

One of the biggest movers of the economy is auto sales.  Like home sales, the auto sales reports are watched closely by economists because as the sales pick up, that means the economy is getting back on track.  Back in 2007, before the recession began, there were about 17 million new car sales.  After that year they slumped.  According to PRWeb 2013 is on track to see 16 million new car sales; the highest number since before the recession.


Auto sales are rarely done without financing.  There are just a select few people that have the means to be able to buy a car outright and not have to use a loan to do so.  Without access to the banks, auto sales would simply dry up; hardly anyone would be able to buy a new car.


When the recession hit a big part of the fall was lending to those with less than perfect credit.  Those with lower credit scores are more likely to default on their loans, and it became a domino effect since people who could never really afford their loans in the first place started to drop off.  The housing market tumbled first, and then the auto market.  In order to counteract this bad business the lenders raised their requirements; no more sub-prime loans.  The minimum credit score needed in order to take out an auto or home loan went up, and those who had poor credit, or no credit, were not able to buy cars.  This had a detrimental effect on the recovery, slowing the amount of money moving in the system.


As the economy continues to rebound, those with lower scores are once again able to get loans.  Lending is loosening, and more people are able to get loans for the cars that they want.  Those with scores under 640 (a score of less than 640 is considered poor, or low) were once unable to get loans, but now they have a better chance of getting their loan.  It does come with a catch, however.


A lower credit scores means higher risk for the lender.  Higher risk means that the lender will need to offset that risk by making more money on the loan.  Therefore, people with lower credit scores have to pay more for the exact same loan than those with a good credit score.


There is still a way to get a good deal on a car loan.  For those who have low credit scores, the key is to shop around.  There are a lot of banks, credit unions, and lenders out there.  Before you even go to the lot to look at a vehicle, make sure to get pre-approved for a loan.  When you do get to the lot, the dealer will want you use one of the lenders that they have a partnership with (they get a kickback for each loan they initiate).  If you have done your research ahead of time, you will have ammunition to barter.  Talking with the finance guy at the dealership you can compare the rates they have access to, to the rates you have been pre-approved for.  If the dealer has better rates you can always go with them, and negotiate the cost of the vehicle (or added perks), if you have found better rates you can use your lender.


A healthy economy is one where money is flowing and moving.  By loosening lending standards more people are helping to keep that money moving.  If you have low credit, there are ways to get your score back up there and avoid those higher interest rates.  Start by taking out small loans (a credit card is great for this) and making regular payments.  When it comes time to get that car loan your score may be high enough to get a better rate.