Ordinary Consumers Can Qualify For Auto Loans Once More
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Everybody who has tried to purchase a new automobile in recent months is well familiar with the fact that it's not as easy as it once was. Only those with spotless credit scores probably got a loan easily. Qualifying for a car loan presented a challenge for everyone else - whether you were trying to get a car loan through the car manufacturer or with your credit union or bank. Luckily things are beginning to get better.
What Went Wrong
The asset-backed securities market provides lending money. Loans are bundled and sold to investors. When investors buy those bundles, more funds are available for making loans. The financing pendulum swings back and forth as it always has. Lenders make the requirements stricter more than reason calls for when they see repossessions. Yes, consumers had been qualifying for loans they could not afford - both for cars and homes. Borrowing was too easy. Everybody could tell you that terms like zero down payments and qualifying based on stated income would result in more failed loans. When the market for mortgage loans crashed, the available cash for auto financing dried up too. Consumer loans suddenly didn't look like a good bet to investors. With loans scarce, only those consumers with super-prime credit - those with credit scores above 730 - could get a loan. Buyers with high credit card balances or credit problems couldn't get financing.
How It's Getting Better
Two things have changed in recent months. The availability of funds has increased, with lenders and investors willing to make loans to consumers with less than perfect credit. Consumers have changed their actions in ways that will help them get financing, as a result of lowered expectations.
Recent months have seen the slackening of borrowing practices. The pendulum has reached its high point, stopped momentarily, and is now headed back the other way. Consumers with credit scores between 620 and 730 can now qualify for car loans. They are also considering consumers who have income, but also have a foreclosure on their record.
Their newfound ability to get a loan can also be attributed to borrowers' behavior. They're doing what is needed to qualify, and their outlook is more practical. They are improving their credit scores, saving for a down payment and paying down their other loans and credit cards.
It's still not as easy as it was back in 2007 & 2008. Consumers with bad credit or significant balances on their trade-ins won't get approved easily. And a healthy down payment is a must. Factory rebates don't normally count as downpayment funds, although GMAC allows it.
As car dealers see their closing rates improve, they are able to sell more cars. This creates more jobs, allowing more car shoppers to buy cars, houses and a variety of other products. As long as borrowers keep making their payments on time, lending requirements will continue to relax. If only they would stop at a reasonable level. Years and years of data should show the best lending practices - those terms at which new loans are relatively high and loan failures are relatively low, maximizing profit. But everyone knows that the pendulum can't easily be stopped.
Article Source: Articlelogy.com
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