It looks like now might be a good time to finance a car even if you happen to be a borrower with less than perfect credit.
According to the latest National Consumer Credit Trends Report from Equifax, despite the fact that new auto loan originations are hitting record highs, the rates of severe delinquencies are the lowest they’ve been in nearly ten years.
“There’s been much concern about the growth of auto lending, particularly in the subprime space, over the past year, yet historically low delinquency rates reveal that the sector continues to perform well,” said Dennis Carlson, Deputy Chief Economist at Equifax. “More consumers are staying current on their payments, which is due to both improved economic conditions and the fact that lenders and dealers are qualifying the right borrowers across the entire credit spectrum. Additionally, the inclusion of non-traditional data, as well as instant verification of income empowers lenders by providing a more accurate picture of a consumer’s financial standing.”
According to its latest report, the April severe delinquency rate (auto loans and leases 60 or more days past due) was 0.81 percent – the lowest it’s been since September 2005. This is also occurring alongside the continued growth in auto loans. Point of fact: new loans through February 2015 hit the 4.1 million mark, a 5.2% year-over-year increase and “the highest number since Equifax began tracking this data in 2005.”
The report also directly addressed the auto loan market that services consumers with credit problems:
- Over 980,000 auto loans have been originated year-to-date to consumers with an Equifax Risk Score below 620. These are generally considered subprime accounts. This is an 8.1% increase over 2014.
- In 2015 through February, 24.2% of newly-originated auto loans were issued to consumers with a subprime credit score, a slight increase in share compared to the same period last year.
- The average subprime loan amount was $17,363 in February 2015. This is a 4.4% increase compared to February 2014.
So, while consumers with credit issues currently have a better chance of getting a car loan approval, “chance” does favor those borrowers who are prepared if they:
- Know their credit scores and the information in their credit reports
- Plan on contributing at least a 10 percent down payment in cash or actual trade equity
- Keep the loan term as short as possible (ideally, 36 to 48 months)
- Choose a subcompact, compact or affordable midsize car
The latest report from Equifax is positive news for car buyers with bad credit. But at the same time, these buyers need to be familiar with their credit situation, come into a loan with at least ten percent down and keep the loan term as short as possible to ensure success.
One more tip: Your Credit Man specializes in matching applicants with poor credit to dealers that can offer them their best chances for car loan approvals.
So, if you’re ready to reestablish your car credit, you can start now by filling out our online credit application.