Car Lenders Ease Credit Standards and Terms to Spur Loans
Lenders in the United States gave car buyers some of the easiest credit terms since the financial crisis in the first quarter as they competed to make more loans to borrowers they see as safe, a credit research company said on Tuesday.
The lenders also provided more money to people with subprime credit scores, cut interest rates and granted more time to repay, Experian Automotive, a unit of Experian Plc, said in a report. Rates of late payments and repossessions by lenders also declined in the quarter, Experian said.
The relaxed terms make it easier for individuals to buy cars, which is good for car dealers, manufacturers and the economy, reported Reuters. But more aggressive lending also increases the chances of another round of losses for banks if borrowers lose their jobs and cannot keep up their car payments.
"This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers," said Melinda Zabritiski, director of automotive credit for Experian.
Lenders are competing more to make car loans as banks struggle with weak demand for credit from consumers and many businesses in the aftermath of the crisis.
Car loans proved to be safer than mortgage and credit card loans during the recession. Borrowers tend to make payments on cars a top priority because they need the vehicles to get to work or apply for jobs, studies have found.
Experian said the portion of new car loans going to subprime borrowers increased by 11.4 percent in the quarter from a year earlier.
The average credit score for borrowers buying new cars dropped six points to 760 on Experian's scale, which classifies marks of less than 680 as subprime. For used-car buyers, the average score dropped four points deeper into subprime range to 659.
Loans were also bigger, with the average amount financed rising $589 to $25,995 for new cars and increasing $411 to $17,050 for used cars.
But average monthly payments increased by $3 or less for new and used cars as borrowers were given more time to repay and were charged lower interest rates.
The average time to repay loans increased by one month from a year earlier to 64 months for new cars and to 59 months for used cars. More than 9 percent of used-car loans were made for more than six years.
Interest rates fell, on average, by 0.27 percentage points to 4.56 percent for new cars and by 0.06 points to 9.02 percent for used cars.
The report also showed that Ally Financial Inc., the former General Motors Co mortgage and auto lender now 74 percent-owned by the U.S. government, has continued to push deeper into used-car lending compared with its competitors.
Ally's share of used car financing by the biggest 20 lenders increased 8.3 percent from a year earlier to 4.2 percent of the market, while its portion of new-car financing fell by 39.7 percent to one-tenth of the market, still the largest market share of any company.
More Industry

Ownership Priorities are Shifting
A new survey shows that in the U.S. vehicle quality for generation Z is largely defined by advanced safety features, intuitive technology and premium sound systems.
Read More →
Pump Price Jump Calculated
ISeeCars.com examined fuel costs for different power trains, finding which ones have experienced the biggest hits since the war in Iran commenced.
Read More →
Black Book: Weekly Market Update
Wholesale values fell last week despite the spring season still being in the traditional full-gear mode, analysts said.
Read More →
Arkansas Auto Group Acquires First Indiana Rooftop
Performance Brokerage Services represented both the buyer and seller in the sale of Carver Toyota of Columbus by Carlock Automotive Group.
Read More →
Stellantis to Dive Into U.S. Lending
The multinational maker of Chrysler, Dodge, Jeep, Ram and multiple other brands received conditional approvals for a Utah-based industrial bank.
Read More →
New-Vehicle Prices Rise
With April sales down, higher prices on in-demand large vehicles helped inflate the overall ATP, though increases were under long-term averages, Cox Automotive reported.
Read More →
Black Book: Weekly Market Update
Last week in the wholesale automotive market proved to be a mixed bag, analysts reported.
Read More →
Black Book: Weekly Market Update
Conversion rates were flat last week at 63%, Black Book analysts calculated, as low-mileage and almost-near units outpaced the overall market.
Read More →
EU Auto Association Urges Action
Trade relations between the European Union and the U.S. are at risk, causing the European Automobile Manufacturers Association to push lawmakers to make a decision.
Read More →
Driving into the Super CFC Era
Understanding the risks and benefits of retail accounting and Super CFCs can help you better present options to your dealer partners.
Read More →