As more Americans try to make do with less, the ‘bad credit car loan’ is on the rise. It seems like an unfortunate ship-meets-iceberg situation; while in recent years, more companies have used FICO (Fair Issac) credit scores as a barometer for more and more consumer transactions, the recent financial crisis has left millions of American families with worse credit scores resulting from job loss, foreclosures, and runaway debt. With all sorts of bad credit car loan deals popping up wherever new or late model vehicles are sold, it makes sense to take a closer looks at how these deals work.
New data about the average bad credit car loan comes from CNW research, an established marketing research company that provides insight into consumer choices and trends in the auto market. What a May CNW report reveals about 2011 car financing is that bad credit, for many of those who seek irregular car loans, isn’t really so bad after all, though according to the firm, the average FICO score for a new car buyer continued to drop this month, into decidedly dicey territory.
The CNW report shows average FICO scores for May 2011 at 669.8. Many lenders consider a good credit score to be 700 or above, with some accepting the moderate 680 as a benchmark. Below that, many are calling the 640-680 range risky, though perhaps not irredeemably “bad.” But those with a 660 or similar score can face challenges at the lot, often in the form of slightly increased interest rates, where dealers or other lenders may just be trying to pad the bottom line.
The idea behind what consumer advocates are telling 2011 new car customers is that, before you accept a bad credit car loan, make sure that your credit is poor enough to require you to take one. Sometimes, a little scouting around to third party lenders can mitigate a “bad credit car loan” situation and help someone with decent personal finances avoid the negative impact of a single judgment or “fluke” that dips a credit score just below what’s considered sparkling.
Another finding by CNW: more consumers are using credit cards to make their down payment. Most new car financing deals require some money down, and the idea is that buyers would contribute a bit of their own cash to the mix. But with a spike in the use of credit to fund more credit at the dealer’s lot, this doesn’t seem to be happening as much as it should. CNW cites a major drop in credit card use through 2008 and 2009, but indicates that the untenable practice of getting a car loan by taxing an existing line of credit might come roaring back. Always look at the interest rates for your car loan and consider how making a “cash” down payment can save you money in the long run.