Trends in the Auto Loan Industry

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The size of the loan and the interest rate is all based on your credit worthiness

The type of interest rate that you can get on an auto loan is based on the quality of your credit score: the higher your score, the better the deal and the lower, the worse
The type of interest rate that you can get on an auto loan is based on the quality of your credit score: the higher your score, the better the deal and the lower, the worse

DETROIT – The type of interest rate that you can get on an auto loan is based on the quality of your credit score: the higher your score, the better the deal and the lower, the worse. Your creditworthiness determines how much risk the lender is assuming by selling you a loan, and this risk translates to a higher rate of interest on the principal.

With this in mind, what can you expect when you begin negotiations with a dealer? First you need to know the average interest rate on a car loan, so that you have a good idea of where you stand.

Online Loan Calculators Are Useful

After you obtain your credit score from a credit card company or one of the major credit bureaus, you should use an online auto loan calculator to ascertain what quality of loan you can command. Although the figure you receive isn’t written in stone, it does present a good baseline for what to expect.

What If You Have Bad Credit

This may have been cause for worry in the past, but these days, with the ubiquity of the World Wide Web and online vendors that compete to work with subprime credit holders, the prospects for consumers in this category are promising.

In fact, Experian Automotive has, in the past few years dating back to 2012, released information on automotive financing that showed that the average credit score for which people successfully received loans for brand new vehicles had fallen several points; in fact, the same had happened for the financing received for used cars. You can access all the information in their auto lending database by signing up for free on their website.

Industry Trends

The size of the loan and the interest rate is all based on your credit worthiness
The size of the loan and the interest rate is all based on your credit worthiness

Another benefit to people with bad credit looking for car loans is that lenders have, since 2012, increased the number of subprime loans by double digit percentage points. The credit score range from 550 to 679 is considered the deep subprime to nonprime range; if you fall within this range, then your chances of securing a loan have improved by a great deal in the past couple of years.

Another change is the lowering of interest rates across the board; in fact, it’s almost double digits for used cars. In general, you can now secure a car loan with lower monthly payments than ever before – but be very wary of extended loan principal repayment terms. By stretching out payments over such a long period, you run the risk of paying a lot more than the car is truly worth. It’s like giving money away.

There are some good reasons to take lower monthly payments and a longer loan term, however. If it’s the only way you can currently afford a vehicle, and need one for work, then it may make sense. There’s always the possibility – indeed, the likelihood – that your credit score improves and you can approach your dealer for a refinance later. With discipline, this approach can work out quite nicely.

This last trend is something you should be very wary of joining – especially if you have poor credit: lenders are convincing borrowers to get bigger loans. This obviously means salespeople are convincing them to get more add-ons, and people are extending their wallets just a bit too much. Remember – the number of loan defaults is rising, too. This is the worst thing that can happen to your credit as you try to rebuild, so be sure to stay out of that trap.