Consumers with less than stellar credit are getting car loans again as lenders loosen their standards, and the trend is likely to continue as more lenders get into the business.
The percentage of loans going to subprime buyers rose 8 percent in the third quarter in the United States, their first year-over-year increase since 2007, according to a report issued on Tuesday by Experian, a credit reporting agency. For new cars, the percentage of loans going to subprime buyers rose 13 percent over the July-September period in 2009. The increase for used cars was 3 percent.
The majority of loans - 63 percent - was still going to buyers with prime credit scores, which is defined as a 680 or above. But even that is settling into a more normal pattern. Before the recession, when credit was very loose, just 51 percent of loans were going to prime buyers, according to Melinda Zabritski, director of automotive credit at Experian. Last fall, when credit was tight, 66 percent of loans went to prime buyers.
Another sign that the credit market is thawing: The loans people are getting are covering larger amounts and have longer terms. The average amount financed for new cars rose $2,530, to $25,273, over the third quarter of last year, while the average amount financed for used cars grew $977 to $16,706. The average terms rose by about a month, although the lowest tier buyers - those with scores of 550 or less - saw their terms rise by nearly four months.
Zabritski said the loosening in auto lending is likely to continue to grow in the near term. On October 1, General Motors Co finalized its purchase of AmeriCredit Inc., a Texas-based company that specializes in subprime lenders and has a $9 billion portfolio of subprime loans. AmeriCredit had already been helping GM with subprime loans, which amount to 4 percent of the automaker's sales. But GM now expects to grow by a percent or two, a significant number considering that GM is on pace to sell more than two million cars and trucks in the US this year.
Banks and auto financing companies feel they can afford to take bigger risks because consumers are being more cautious with their money.
