Experian Finds Lower Rates of Default on Car Loans in June
A new report from Experian shows that American borrowers were less likely to default on their auto loans going into June than in the month of May. Default on loans went down in most types of lending, where the rate of default for auto loans went down from 1.34% to 1.29% from May to June.
These numbers might seem nearly imperceptible to consumers, but the reality is that sea changes in auto loan trends can influence what you pay at your local dealership. We’ve been hearing about decreased default activity for awhile as Americans slowly climb out of the depression/recession caused by the general financial crisis in 2008. As borrowers become less likely to default, less of those who visit a dealer’s lot may need to have that awkward conversation about remote engine immobilizers, or end up moving the SUV around the block to avoid the repo man. But that’s not the only way that changes in auto loans affect the borrowing community: lenders look at this kind of demographic data in setting their “by the book” policies, whether it’s the rate of interest that will cover standardized risks, or the fault line for auto loan approval and rejection. At the same time, lenders are also reaching out more to the “sub-prime” crowd, or those with credit scores under 660-700 who may be tarred with the “bad credit auto loan” brush just for a couple of low-balance judgments on their credit report that might be months or even years old.
Although less loan defaults are a good thing for the industry and for borrowers with credit scores skewed slightly south, car buyers who passively rely on outside factors to influence their car financing deals usually end up paying more than the need to. If you are about to visit the car lot, put yourself in the driver’s seat in auto loan negotiations by researching pre-qualification from third party lenders, knowing your credit score and trade-in value, and studying current interest rates. This way, you’ll be more prone to benefit from any easing of auto loan policies as skittish lenders slowly pry their fingers from the purse strings.