Lending Landscape Shifting for Sub-Prime Markets

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Lending Landscape Shifting for Sub-Prime Markets

Posted On : Mar-25-2011 | seen (266) times | Article Word Count : 698 |

Sub-prime loans are reshaping the Car lending landscape as more borrowers show reliance on payments and the economy demands a widening of credit rating acceptability standards.

Due to recent lending decreases by major financial institutions, many consumers who are suffering from unemployment and less-than-perfect credit scores may not be able to achieve a loan through traditional outlets. But the good news is that dealers themselves are loosening the requirements in several markets, according to recent news from SmartMoney.

It’s true that, major lenders, such as banks, thrifts and savings and loans typically view consumers with low credit scores as an increased risk and more likely to default on loan payments than those with better credit histories. A subprime credit score is usually defined as being lower than 620, though this varies based on the bureau the report is issued from, and the lender reviewing the loan application.

However, the definition of a subprime borrower may be changing due to the fact that consumers have been making more timely payments and issuers have seen fewer defaults in recent months. What that means is, sub-prime borrower may not necessarily carry the same stigma it did in pre-recession times.

"There definitely is a changed marketplace," Melinda Zabritski, director of automotive credit for Experian, told car news provider Edmunds.com. "We're seeing a year-over-year increase in the percentage of loans that are booked in the subprime space." Translation: If you have less-than prime credit you are not necessarily out of car buying or car leasing game.

Zabritski credits consumers with changing the car lending environment, as many have become more responsible with payments and opted for budget-friendly vehicle purchases in recent months. They are proving that just because they may not fit the prime borrower mold doesn’t mean they can’t make for reliable, long-term customers. And dealers are offering lower interest rates to those borrowers as way to fill the gaps left by rejected loans at major institutions.

The average interest rate on a new car loan from a traditional lending company was 5.9 percent in recent weeks, according to SmartMoney. By comparison those who secured financing through a dealership received an average rate of 4.2 percent. While this may not seem like a huge difference, over the life of a 60-month loan, it can add up to hundreds in savings and mean more money will be available for other necessities.

While rates have declined for subprime borrowers, those with good credit scores are also seeing improvements in their financing options. These users will likely enjoy added benefits during this time, as the flexibility their credit garners can lead those who compare loan offers to the best interest rates.

While a down economy or recession typically brings with it tighter credit (fewer loans, higher credit scores necessary, etc.), current conditions have taken fewer financing options to a new level of elusiveness. And the benefactors are those who might not necessarily qualify for a car loan with their bank or traditional lender.

So, why the ease up on lending practices? To begin with, car manufacturers and car lenders have both been hurt by the declining number of car buyers since 2004. Once way of getting those buyers back on to dealership floor rooms is to create new and more flexible loan products to jump start the auto purchase market.

The uncertainty of job security and continued cash flow causes many car buyers to postpone, if not cancel, projected new purchases . In most cases, they are wise to do so, for a while, at least. Yet, there are still some good choices to finance a new car if you need or really want one.

Some dealerships are even offering loans near zero percent in an attempt to lure frugal Americans back to the marketplaces. Unlike past financing offers, these rates are now available on a wide range of newer and older vehicles from popular brands such as Toyota and Honda.

As a result, consumers will likely want to assess the state of their current vehicle and contemplate whether they are in a financial situation that will let them take advantage of these deals.

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<h1>Lending Landscape Shifting for Sub-Prime Markets</h1> Author: <a href='http://www.articleseen.com/profile_William Ford.aspx'>William Ford</a> Due to recent lending decreases by major financial institutions, many consumers who are suffering from unemployment and less-than-perfect credit scores may not be able to achieve a loan through traditional outlets. But the good news is that dealers themselves are loosening the requirements in several markets, according to recent news from SmartMoney.

It’s true that, major lenders, such as banks, thrifts and savings and loans typically view consumers with low credit scores as an increased risk and more likely to default on loan payments than those with better credit histories.  A subprime credit score is usually defined as being lower than 620, though this varies based on the bureau the report is issued from, and the lender reviewing the loan application.

However, the definition of a subprime borrower may be changing due to the fact that consumers have been making more timely payments and issuers have seen fewer defaults in recent months. What that means is, sub-prime borrower may not necessarily carry the same stigma it did in pre-recession times.

"There definitely is a changed marketplace," Melinda Zabritski, director of automotive credit for Experian, told car news provider Edmunds.com. "We're seeing a year-over-year increase in the percentage of loans that are booked in the subprime space."  Translation: If you have less-than prime credit you are not necessarily out of car buying or car leasing game.

Zabritski credits consumers with changing the car lending environment, as many have become more responsible with payments and opted for budget-friendly vehicle purchases in recent months.  They are proving that just because they may not fit the prime borrower mold doesn’t mean they can’t make for reliable, long-term customers.  And dealers are offering lower interest rates to those borrowers as way to fill the gaps left by rejected loans at major institutions.

The average interest rate on a new car loan from a traditional lending company was 5.9 percent in recent weeks, according to SmartMoney.  By comparison those who secured financing through a dealership received an average rate of 4.2 percent. While this may not seem like a huge difference, over the life of a 60-month loan, it can add up to hundreds in savings and mean more money will be available for other necessities.

While rates have declined for subprime borrowers, those with good credit scores are also seeing improvements in their financing options. These users will likely enjoy added benefits during this time, as the flexibility their credit garners can lead those who compare loan offers to the best interest rates.

While a down economy or recession typically brings with it tighter credit (fewer loans, higher credit scores necessary, etc.), current conditions have taken fewer financing options to a new level of elusiveness.  And the benefactors are those who might not necessarily qualify for a car loan with their bank or traditional lender.

So, why the ease up on lending practices?  To begin with, car manufacturers and car lenders have both been hurt by the declining number of car buyers since 2004.  Once way of  getting those buyers back on to dealership floor rooms is to create new and more flexible loan products to jump start the auto purchase market.

The uncertainty of job security and continued cash flow causes many car buyers to postpone, if not cancel, projected new purchases . In most cases, they are wise to do so, for a while, at least. Yet, there are still some good choices to finance a new car if you need or really want one.

Some dealerships are even offering loans near zero percent in an attempt to lure frugal Americans back to the marketplaces. Unlike past financing offers, these rates are now available on a wide range of newer and older vehicles from popular brands such as Toyota and Honda.

As a result, consumers will likely want to assess the state of their current vehicle and contemplate whether they are in a financial situation that will let them take advantage of these deals.About the Author: For more details please visit <a rel="nofollow" href="http://www.123carfinance.co.uk/ ">www.123carfinance.co.uk</a> Article Source: <a href='http://www.articleseen.com/Article_Lending-Landscape-Shifting-for-Sub-Prime-Markets_57230.aspx'> http://www.articleseen.com/Article_Lending Landscape Shifting for Sub-Prime Markets_57230.aspx</a>

Article Source : http://www.articleseen.com/Article_Lending Landscape Shifting for Sub-Prime Markets_57230.aspx

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For more details please visit www.123carfinance.co.uk

Keywords : Car Loan, Car Finance Loans, Car Loans,

Category : Finance : Finance

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