Lending firms’ more relaxed terms up auto loan approvals across all credit score brackets

With the downturn in the global economy, bad credit loans from established banks and many lending firms seem impossible. The banks’ long drawn process of scrutiny on loan applicant’s records, high interest rates and often unfavorable loan terms make borrowing money for people with poor credit scores much more difficult. Those with credit scores that fall from 680 and 739 will probably pay 4.5% annual percentage rate on their loans. However, people with credit scores falling below 680 will probably pay 6.5% to 12.9% annual percentage rate.

Loan approval across all credit scores

But loan experts say despite consumers’ bad credit standing, auto loans even from those with less than good credit history might just get approved. Data published by the Experian Automotive say more loans from car buyers with less than perfect credit records are being granted. Experian Automotive’s credit analysis also found that in the first quarter of 2012, the average credit rating for new vehicle shoppers was at 760—slightly higher than the first quarter of 2008. The average credit rating for used cars, on the other hand, dropped a few points to 659.

Industry analysts say, recently, lending firms seem willing to make more loans. The study further stated that during the first three months of 2012, car loans to consumers with nonprime to deep subprime credit ratings or those with scores from 679 to 550 and below, went up by 11.4%. With lending firms offering lower monthly interest rates and longer loan terms, car buyers are now getting bigger loans. Data released by Experian Automotive indicate that the average interest rate for new vehicles is at 4.56% and 9.02% for used vehicles. The average auto loans went up to $25,995 for new cars and $17,050 for used cars.

Why lenders set favorable loan terms

Insiders from the automotive finance industry explain that the significant number of consumers paying their debts on time brings about these positive changes. Reports say that loan payments that were 60 past due fell by 12.1%. On the other hand, the number of loan paybacks 30 days past due went down by 7.6%. Moreover, there has been a decline in the cases of vehicle repossession by 37.1%.

Also, lending firms are now eager to look beyond the simple credit score. They tend to consider other reasons for late payments, says an industry insider. Morover, missing a couple of mortgage payments won’t necessarily lessen the chances of getting a loan approval. Automotive financiers actually consider income and capacity to pay loans.

A senior product manager in Experian Decision Sciences also revealed that auto loans seem easy to get these days since lenders are more comfortable with the fact that cars can be repossessed. What encourages the lenders to take risks at automotive financing is that they can recover their money if the debtor fails to pay back on the agreed terms.

The quarterly automotive credit analysis also reports that the automotive finance industry is as healthy as it was before the economy hit rock bottom in 2008. More lending firms are now eager to extend terms and provide lower interest rates since consumers have been paying back their loans as agreed. It also helped that the percentage of dollars being at risk reached its lowest point in six years. Hence, these changes have benefited everyone, from consumers to lending firms, to automotive retailers.

As a director of automotive credit in Experian shares, this year is “a good time to buy a car” even for bad credit loans.