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Auto Lenders Loosening Access To Credit


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Auto Lenders Loosening Access To Credit

Riskier buyers gaining credit even as delinquencies fall.

by Paul A. Eisenstein on Dec.07, 2010

Lenders lossen credit, but delinquencies and defaults still decline, reports Experian.

Barely a year ago, even some of the most affluent, credit-worthy customers were being turned away when they applied for automotive loans – one reason new car sales slumped to a decades-low 8.6 million for 2009. But things are starting to turn in a positive direction, according to a new study by research firm Experian Automotive.

Not only have the spigots re-opened for buyers with top-tier credit scores, but even the “credit challenged” are beginning to find ways to land loans. Significantly, the loosening of credit is matched by a sharp decline in both loan defaults and delinquencies, according to Experian’s analysis of third-quarter automotive lending.

“Easier access to loans is a positive sign for the auto industry, as tighter loan criteria during the economic downturn represented a significant challenge for automotive manufacturers and their retail networks,” said Scott Waldron, president of Experian Automotive. “Making it easier for consumers to obtain credit can only help the auto industry moving forward.”

Lenders are still focusing on the top tier, so-called “prime” customers who garner at least a 680 on their credit scores. But the share of loans going to the lower tier is rising — for those who might be termed credit challenged, the increase was 12.7% during the third quarter compared to the year before.

At the same time, the number of buyers 30 days behind on their loans fell 8.43%, while 60-day delinquencies were down 17.39%. In all, the total dollars at risk should buyers default on loans plunged by $6.4 billion.

“With delinquencies down and less money in their portfolios at risk, lenders can be a little less conservative in their lending strategies,” suggested Melinda Zabritski, Experian’s director of automotive credit.

Other findings:

The average credit score for a new vehicle customer during the third quarter fell to 769 from 775 the year before;

For used vehicle buyers, scores fell just one point, to 683;

The average loan for a new vehicle increased by more than 10%, jumping from $22,743 to $25,273;

For used cars, loans increased about 6%, from $15,729 to $16,706.

While tight money took at least some of the blame for last year’s dismal car sales, a further loosening of credit is generally seen as essential for a further automotive market recovery. IHS last week predicted new vehicle volumes should grow by about 1 million units, to 12.8 million, in 2011, then surge to 14.8 million in 2012. (For more on automotive sales forecasts, Click Here.)



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