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Car Loan Approval Rates Are Improving

July 20, 2010
2 min to read


DES MOINES, Iowa — It's getting easier to get a car loan, The Associated Press reported.


"A couple of months ago, it was horrible," says George Magliano, an automotive research analyst with IHS Global Insight. "The least blemish on your credit report and you got nothing."

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The loan approval rate for customers with the highest credit scores was 90 percent in June after sliding to 70 percent in late 2008 during the recession. It's this group that's taking advantage of the widely advertised zero-percent financing deals.


For the majority of consumers with middle-tier credit, in the range of 620 to 750, loan approvals jumped 12 percentage points in the past year to above 82 percent, says CNW Marketing Research of Brandon, Ore. Plenty of banks are eager to make deals.


And now, even those with poor credit scores are getting a break.


Historically, the approval rate for subprime borrowers — those with scores below 620 — ran about 60 percent. Last year, the rate fell to 5 percent. Now, it's running at 9 percent.


Subprime borrowers still need to make a sizable downpayment and will pay interest of 10 percent or more, but car buyers with poor credit make up a big chunk of the market.

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About 17 percent of all the auto loans written for new car buyers in the first quarter were to customers with below-prime credit. This same group obtained 53 percent of the loans for used cars, according to the credit reporting agency Experian.


Selling more cars is vital to an economic recovery. The auto industry accounts for around 3 to 5 percent of the nation's gross domestic product and about 16 percent of all durable goods shipments. Better access to credit is an important step to selling more cars and helping an industry that has seen 250,000 jobs disappear in the past three years. Nearly 830,000 auto-related jobs still exist in the United States.


It helps that interest rates are falling. The average rate for a four-year car loan this month is 6.3 percent, down from 7.2 percent a year ago, according to Bankrate.com.

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