When the Detroit Three and the rest of the US economy nearly ran into the ditch, car loans were hard to come by for all but those with extremely good credit scores. But Experian Automotive, a division of credit bureau Experian plc, reports that Q1 2012 was the loosest quarter for car lending since the onset of the economic crisis.
Lenders are offering loans to subprime borrowers (which Experian terms as folks with credit scores below 680), better interest rates, and loans of longer duration. The value of the average loan is also increasing. The average loan was $25,995 in Q1 — a rise of $589 compared to the same time in 2011. But as loan values rose, average monthly payments only increased about $3 because the duration of loans increased and interest rates were lower. Average interest rates for new cars fell more than a quarter percent to 4.56 percent; rates for used cars dropped only 0.06 percent to 9.02 percent.
All of this lending has helped drive 2012 year-to-date US auto sales (January through April) up more than 10 percent compared to the same period last year, according to Autodata. Passenger car sales grew nearly 15 percent; light truck sales rose more than 5 percent.
Getting the auto lending machine going again is good for consumers, car makers, car dealers, lenders, and the economy as a whole. But some worry lenders may be rushing to the party too soon, and could suffer more losses if unemployment worsens and drivers can’t make their payments. However, studies during the recession showed that consumers were more likely to keep up their car payments when things get tough — often at the expense of making their credit card or even mortgage payments. Consumers need their cars to get to work, or look for work if they’ve lost their jobs.
The recent drop in gas prices may spur even more consumers to head down to the dealer to look for a deal.