Smart Borrower Blog

Auto Loans Still Hard to Come By

Even though many banks receiving federal bailout money promised to make more money available for auto loans, it appears that not much has changed lately in terms of how hard it is to get car financing.

For example, a recent CNN article reported that GMAC bank announced plans last December to earmark $5 billion for new car loans that could be offered to even to those with low credit ratings. So far, the company has only made $3.4 billion in loans during the first quarter and many auto dealers say very few of those are being made to those with average to low credit scores.

Those claims have confirmed by recent figures showing that last month only 20 percent of subprime or poor credit borrower applications were approved for financing in May, while 89 percent of prime or good credit applications were approved.

Apparently rising default rates are to blame for lender stinginess.The risks of loss are greater the promise of potential profit.

Here's how Steve Cypher on the autocreditexpress.com   blog summarized the situation:

Even though the U.S. economy is showing signs of a possible recovery later on this year, car loans for all but the most creditworthy customers (whose numbers are also on the decline) continue to be difficult to obtain. For those customers looking for bad credit car loans, the landscape continues to be bleak. Higher interest rates, shorter terms and larger down payments continue to be the rule, rather than the exception.

So basically, he's saying if you have bad credit, good luck! Purchasing new or even used cars may simply be out of the picture for many people before they save up for a sizeable down payment.