More Car Loans Going to Borrowers With Bad Credit

by Matthew Scott Dec 7th 2010 12:16PM
More Car Loans Going to Borrowers With Bad Credit If you’ve been rejected for a car loan due to poor credit during the last year, and you’d still like to buy a new car, it may be time to apply for that loan again. Experian Automotive (EXPN) reported on Tuesday that the automotive credit industry increased the share of new car loans going to credit-challenged borrowers by 12.7% in the third quarter of 2010 compared to the same period last year, a sign that lenders are loosening their credit criteria.

The report also found that the number of borrowers defaulting on their loans declined in the third quarter, saving the industry $6.4 billion.

During the third quarter, new loans to nonprime customers (those with credit scores in the 620 to 679 range) rose to 10.86% of all loans from 9.79% in Q3 2009. Loans for subprime customers (with credit scores from 550 to 619), increased to 6.61% from 5.66% in 2009, and loans to deep-subprime customers (credit scores below 550) rose to 1.59% from 1.46%.

Customers were not only able to gain approval for more loans, but for higher loan amounts. The average loan amount for a new vehicle jumped to $25,273 in he quarter, up from $22,743 a year earlier. The average loan amount for a used vehicle jumped from $15,729 to $16,706.

“With delinquencies down and less money in their portfolios at risk, lenders can be a little less conservative in their lending strategies,” said Melinda Zabritski, director of automotive credit for Experian, in a statement. Zabritski also said that lenders were now offering a greater variety of loans to meet the needs of a wider group of consumers.

The relaxing of credit standards is expected to help keep up the positive sales momentum that the auto industry has seen this year. Morgan Stanley’s Auto Industry Outlook for 2011 calls for auto sales to rise about 10%.