The latest report from Experian Automotive shows that although the market may be stabilizing it will take some time before the bad credit auto loan activities begin picking up.
Latest report
Experian Automotive has just released its latest report on the automotive lending industry here in the U.S. A report that, we’re glad to say here at Auto Net Financial, states that the vehicle loan sector is “showing signs of stabilization.”
That was the good news. The same report also went on to show that the growth rate for 30-day loan delinquencies was slowing, while “average credit scores for new and used vehicle loans (are) rising, (and)loan terms (are) shortening.” For bad credit consumers, all three issues could be a problem.
With average credit scores rising and loan terms shortening, even though the market may be stabilizing, this means that lenders are still distressed about the overall loan market and the continued rise in loan delinquencies. This means they are continuing to require higher credit scores while, at the same time, limiting their exposure by shortening loan terms. This is a trend that applies to both the prime as well as the bad credit (subprime) loan sectors.
The following is an excerpt from the Experian Automotive press release:
SCHAUMBURG, Ill. – Despite continued economic struggles, the automotive lending industry in the U.S. showed signs of stabilization during the third quarter of 2009, according to a quarterly analysis of automotive credit released today by Experian Automotive.
The growth rate for 30-day delinquencies, while still rising, has slowed significantly. The 30-day delinquency rate rose 5.8 percent from the third quarter of 2008 to the third quarter of 2009 (3.14 percent to 3.32 percent delinquencies). The growth rate from third quarter 2007 to third quarter 2008 was 9.5 percent.
“We are seeing signs of stabilization in the automotive lending market that could spell good overall health for the auto industry in the long run,” said Scott Waldron, president of Experian Automotive. “Lending institutions are making less risky loans right now. As some of the higher-risk loans from a few years ago come off the books, lenders will be in a much better position to serve the automotive market.”
The average credit score for new vehicle loans in the third quarter of 2009 was 775, up from 762 in the third quarter of 2008, showing that lenders are pulling back from riskier loans. Average credit scores for used vehicle loans also rose to 684 in the third quarter of 2009 from 670 in the third quarter of 2008. In addition, the average new vehicle loan dropped from 63 weeks in the third quarter of 2008 to 62 weeks in the third quarter of 2009, and the average used vehicle loan dropped from 59 weeks in the third quarter of 2008 to 57 weeks in the third quarter of 2009.
“While higher-than-average delinquency rates are still with us, and may be for some time, the fact that the rate of increase is slowing is definitely some positive news for an industry that hasn’t had much as of late,” said Melinda Zabritski, director of Automotive Credit for Experian Automotive. “These slowing delinquency rates, along with several other trends we are now seeing, should provide some cautious optimism for the market.”
In other findings:
• Loans 60 days past due were up 13.4 percent year over year in the third quarter of 2009. Automotive loans 60 days past due rose to 0.95 percent from 0.84 percent.
• Toyota Financial Services had the highest market share for new vehicle loans (11.2 percent), followed by Chase Auto Finance (11.1 percent), GMAC (9.1 percent) and Ford Motor Credit (7.1 percent).
• Wachovia Dealer Services (5.7 percent), Chase Auto Finance (4.5 percent), Toyota Financial Services (3.0 percent) and Capital One Auto Finance (1.8 percent) have the highest market share for used vehicle loan originations.
• The states with the highest average credit score for new vehicle loans were Minnesota (804), Wisconsin (796), Washington (793), Iowa (792) and Connecticut (789).
• The states with the highest average credit score for used vehicle loans were Wisconsin (733), New Hampshire (731), Minnesota (731), Connecticut (730) and North Dakota (729).
How it plays out
The bottom line to the Experian Automotive report is that lenders in both the prime and (especially) subprime areas are looking at approaches to minimize their risks. These methods include requiring higher credit scores and reducing loan terms. In drawing a parallel with the car loan market two years ago, consumers with a given credit score will now be paying a higher rate of interest and will be asked to reduce the term of their loans.
At Auto Net Financial, our advice to consumers seeking bad credit car loans hasn’t changed since the beginning of the current economic downturn:
• Know your credit score and what’s contained in your credit report
• Plan on coming into the loan with at least 10 percent down in cash or trade equity
• Keep the loan term as short as possible
• Buy a compact or midsize vehicle and put off looking at your dream car until after you’ve reestablished your credit.
Let us help you
At Auto Net Financial, we want you to make the right choices when it comes to a bad credit car loan buying decision. That includes finding the right dealer and the right car to help you reestablish your auto credit and improve your credit score.
For more information on the bad credit auto loan process, please visit our web site at www.autonetfinancial.com.
