Credit continues to loosen and more lenders are giving auto loans to shoppers with credit scores that are considered less than perfect. The number of new car loans that went to these shoppers in the third quarter increased by 12.7 percent compared to the third quarter of 2009, according to Experian Automotive.
"Easier access to loans is a positive sign for the auto industry, as tighter loan criteria during the economic downturn represented a significant challenge for automotive manufacturers and their retail networks," said Scott Waldron, president of Experian Automotive. "Making it easier for consumers to obtain credit can only help the auto industry moving forward."
Experian Automotive breaks its quarterly analysis down into credit tiers. Auto loans for new vehicles for consumers with nonprime credit scores (620 to 679) increased to 10.86 percent in the third quarter, from 9.79 percent in the third quarter a year ago. More subprime car shoppers (550 to 619) also received auto loans for new vehicles, up from 5.66 percent a year ago to 6.61 percent in the third quarter. Deep-subprime shoppers (550 and less) were up from 1.46 percent to 1.59 percent.
"Overall, our Q3 analysis shows that there are very positive signs for the automotive lending industry," said Melinda Zabritski, director of automotive credit for Experian. "With delinquencies down and less money in their portfolios at risk, lenders can be a little less conservative in their lending strategies. Consumers still have the impression that lending is extremely tight, so it will be important for lenders and automotive retailers to educate car shoppers that there are more loans available to a wider group of consumers."
Experian Automotive also reports that the 30 and 60-day auto loan delinquency rates are down, meaning more consumers are paying their car loans on time. In the third quarter, the 30-day auto loan delinquency rate dropped from 3.27 percent a year ago to 2.99 percent. The 60-day car loan delinquency rate fell from 0.93 percent in 2009 to 0.77 percent in the third quarter, which was a decline of 17.39 percent.
Experian Automotive also found that average credit scores are down and total auto loan amounts are up. New car loan approvals went to customers with an average credit score of 769 in the third quarter, down from 775 a year ago, while used car loan customers had an average credit score of 683 in the third quarter, which was down only one point from a year ago.
Consumers borrowed more in the third quarter, with an average auto loan amount of $25,273 for a new vehicle (up from $22,743 a year ago). The average auto loan amount for a used vehicle in the third quarter increased to $16,706 from $15,729 in 2009.
While the higher approval rates for shoppers with less than perfect credit are good if you fall into this category, keep in mind that the lower your credit score, the higher interest rate you will pay on the auto loan. Those with the best credit scores still receive the lowest interest rates.