In the auto financing world, just like anywhere else, that old axiom hold true: the only sure thing is change. As the auto loan business keeps going through changes, it’s a good idea to take a look at how some of the big lenders are addressing the subprime loan industry, or, in plain English, loans to people whose credit scores have taken a hit for any reason.
One of these larger auto loan businesses is getting more aggressive in offering “bad credit auto loans” to people who have scores lower than the squeaky-clean 660-700 range. But even the name of this lender is a little confusing. This month, Reuters reports that Ally Bank is now making more subprime loans to customers, trying to accommodate lower credit buyers, apparently without hiking up interest rates into the stratosphere. But more research reveals that Ally Bank is really just the newest incarnation of GMAC, the prior captive finance company of General Motors and the company that has written the bulk of factory-direct loans on Chevrolets and other GM brands for decades. Since Reuters reports that General Motors still makes direct loans, which, according to the reporting, cuts into Ally’s business, the whole thing seems a bit weird. In any case, the big news is that Ally is increasing its subprime portfolio, taking in more customers with lower credit scores, and also upping its set of loans for used vehicles to the tune of 50%. These strategies are causing a big debate with vehement arguments on both sides of the aisle. On the one hand, lenders need to get with the program. There are so many borrowers out there who don’t look good on paper, but have been the innocent victims of job fallout from the 2008 crash or other unforeseen events. These people need auto loans, and they deserve them. On the other hand, accounting wonks continue to scream that Ally’s numbers look unstable. We’ll see where the whole thing goes, but for now, the new open doors at Ally seem like good news to those credit-poor car buyers who need more options for shopping around to get better quality auto loans. When you go to the lot, always examine proposed loans and what your total debt will be over time. Dealer loans have been known to cost customer more than double the actual sticker price. Don’t let this happen to you: talk to Ally, Capital One and any other third party lenders to get the best auto financing for your budget.