Good Ezines

If you’ve tried to buy a new car in the last year and a half, you know that it hasn’t been easy. If you had near-perfect credit, you probably got through without a hitch. For everyone else, it was a struggle – whether you were trying to get financed through the auto maker’s finance company or with your credit union or bank. Fortunately things are beginning to turn around.

What Went Wrong

Lending money comes from the asset-backed securities market. 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. When lenders get burned, they tighten up more than reason calls for. Yes, people were getting loans they couldn’t afford – both for homes and cars. Borrowing was too easy. Anyone could tell you that terms like no down payments and qualifying based on stated income would result in more failed loans. When the market for mortgage loans crashed, the pool of funds for auto loans dried up too. Lenders were suddenly much less willing to take a chance. The fewer available loans went to consumers with super-prime credit – those with credit scores above 730. Buyers with credit problems or high credit card balances couldn’t get financing.

What Has Changed

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’ expectations have changed, and they’ve changed their behavior in ways that will help them get loans.

Lending practices have eased up in recent months. The pendulum has reached its zenith, paused, and is now headed back the other way. Lenders are again offering loans to prime and near-prime borrowers – those with credit scores between 620 and 730. They’re also considering borrowers who have a foreclosure on their record but still have income.

Borrowers, too, are responsible for their newfound ability to get a car loan. Their expectations are more reasonable, and they’re doing what is necessary to get approved. They’re paying down their credit cards, saving up a down payment and improving their credit scores.

It’s still not as easy as it was back in 2007 & 2008. Car shoppers with poor credit or large balances on their trade-ins won’t get financed easily. And a healthy down payment is a must. Most finance companies will not allow customers to count rebates as downpayment funds, although GMAC allows it.

As auto dealers see their closing rates improve, they are able to sell more cars. This creates more jobs, allowing more people to buy cars, homes and everything else. As long as borrowers keep making their payments on time, lending requirements will continue to ease.

If only they would stop at a realistic level. Years and years of data should show the optimum lending practices – those terms at which new loans are relatively high and loan failures are relatively low, maximizing profit. But we all know that the pendulum can’t easily be stopped.

Written by Coleen Bennett Infinity Lease Los Angeles Infinty Lease Riverside