Economic self-financing for people with credit rating problems

In recent years, many consumers have been turned down for new car loans simply because their credit scores were too low. Additionally, those experiencing financial difficulties with debt and unemployment could only qualify for interest rates that may have been too high for their monthly budgets.

High-risk borrowers traditionally fall below the 620 mark in the credit score range. Credit scores are calculated by evaluating a borrower’s past credit history, current credit use, and other financial statistics – information that appears on consumer credit reports.

Lenders generally view people in the high risk category as high risk, and as a result, these consumers tend to pay more for services like credit cards, mortgages, and insurance policies. Over a lifetime, a low credit rating can cost borrowers thousands of dollars in the form of higher interest rates and monthly payments.

During the credit crisis, many sub-prime borrowers were excluded from the credit system and denied loans, because banks and lenders tried to hedge against risks by targeting mainly those with great credit for new offerings.

However, a new report from auto industry leader Edmunds.com suggests that the outlook is changing for these consumers, who are now being approved for more new car loans.

Additionally, the report says that these consumers can obtain the same financing rates available to those with excellent credit scores, simply by going through dealerships rather than traditional lenders to obtain a car loan.

“There is definitely a changed market,” Melinda Zabritski, director of auto credit at one of the three major credit bureaus, told the news source. “We are seeing a year-over-year increase in the percentage of loans that are registered in the subprime space.”

The average interest rate on a new car loan from a major lender is currently around six percent. By comparison, many dealerships are offering an average rate of 4.2 percent and, in many cases, close to zero percent to persuade frugal buyers of the market, according to SmartMoney.

Those with good credit are also seeing added benefits. In November 2008, these borrowers were eligible for a 60-month bank loan with an APR of 6.54 percent. By contrast, the same loan in December 2010 was made at an average 4.35 percent, Edmunds reports.

One of the reasons these financing options are available today is that many consumers have stopped buying new cars, given the state of the economy. As a result, those who choose to finance a vehicle are now seeing more payment flexibility than ever.

In part, this change is due to the fact that consumers have changed the way they finance their vehicles. Over the past year, auto loan delinquencies at major lenders have stagnated or declined as people have been more likely to buy a car in their price range.

For many in the industry, this marked a departure from pre-recession sentiment, when many consumers were simply making impulse purchases that were often out of their price range.

In recent months, dealer loan programs have also expanded to incorporate a wider variety of makes and models from major automakers, meaning these lower rates don’t just extend to older vehicles. In some cases, consumers can get a 2011 Toyota Camry, which sells for around $ 20,000, at these prices.

As a result, consumers may want to evaluate their current vehicles and consider upgrading to newer models, as these offers may not last long.

Leave a Reply

Your email address will not be published. Required fields are marked *