Since the economy hit rock bottom in 2008, bad credit loans approval have become nearly impossible. In some cases, bad credit loans might be approved but require borrowers to pay sky-high interest rates. Since banks and major lending firms want to ensure safe loans, meticulous investigations on credit scores and history are conducted. This lengthy process, high interest rates and sometimes unfavorable loan terms often deject borrowers from making loans.
Borrowers in the lower brackets—subprime and deep subprime—will have to pay higher annual percentage rates as compared to those in the upper brackets—nonprime, prime and superprime. Prime borrowers with credit scores between 680 and 739 may be required to pay an annual percentage rate of 4.5%. Nonprime to deep subprime borrowers might probably pay a bigger annual percentage rate ranging from 6.5% to 12.9%.
Auto financiers more willing to lend
Industry analysts see more and more lending institutions approving loans, even bad credit loans. In a quarterly credit analysis released by Experian Automotive, more car loans from buyers with bad credit history are being granted. The credit rating company also found that loans to borrowers in the nonprime, subprime and deep subprime categories accounted for more than one in four car loans in the second quarter of 2012. Since 25.41% of all new car loans were given to borrowers in the said brackets, loans to those with bad credit records went up to 14% compared to the second quarter of 2011.
Since lending firms are now offering lower monthly interest rates and more flexible loan terms, vehicle buyers are now getting bigger loans. In the credit analysis by Experian Automotive, new cars bought on credit are paid with an average interest rate of 4.56%. Old cars, on the other hand, are paid with an average interest rate of 9.02%. The average auto loans climbed up to $25,995 for new vehicles and $17,050 for used vehicles. Apparently, as the director of Automotive Credit at Experian says, “It’s a good time to buy a car.”
Why lending institutions make more loans available
Analysts at Experian see that the overall lending environment has improved quite well. This has somehow encouraged lenders to make more loans available to a wider range of borrowers. The report has also expressed confidence that many consumers have been paying back their loans on time as cases of late loan payments have decreased from 7.6% to 12.1%. Cases of vehicle repossession have also went down by 37.1%. That the percentage of dollars at risk has reached its lowest point in six years has also convinced more lending firms to open up to a wider market.
Insiders from the credit analysis firm revealed that auto loans are relatively easier to get these days because of the fact that lending institutions are more secure about cars being repossessed should their debtors fail to pay them as agreed upon. This way lending institutions can easily recover their money from the debtor.