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Auto Loan Strategy: Hurry Up or Wait?

Richard Barrington
LoanBiz Columnist

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In the wake of rising mortgage defaults, other types of lenders, such as those making auto loans, are said to be tightening their standards. In particular, auto loans for people with bad credit may become tougher to come by in the months ahead. For people now thinking of getting an auto loan, the best strategy may be "hurry up and wait" -- or more accurately, hurry up or wait. It's an almost inevitable chain reaction. As concerns about mortgage defaults and the economy in general rise, those concerns have started to spread to other forms of consumer credit, such as credit cards and auto loans. This is likely to affect lending standards in the months ahead.

Lending standards impact auto loan borrowers in three ways, by dictating all of the following:

  • The threshold of credit quality necessary to obtain an auto loan
  • The amount of documentation required when applying for a loan
  • The additional interest rate charged on auto loans for people with bad credit

Hurry Up...

People who have been thinking about getting an auto loan may want to hurry up and act before the market tightens up. As always, it does take a while for talk about tightening lending standards to trickle down to the branch office level in the form of policy. In particular, anyone with questionable credit might want to check out lenders now to see how demanding underwriting guidelines have become.

... Or Wait

While tighter lending standards may limit auto loans for people with bad credit, it can also affect people with short credit histories or only a few black marks on their credit backgrounds. These people could be charged higher interest rates, which directly impact their monthly auto loan payments. However, these borrowers can more easily and quickly build / rebuild a credit history than those with thoroughly trashed credit. Taking a little more time to establish or rebuild credit while saving a more substantial down payment could be the smarter move for long-term financial security.

As always, borrowers should budget carefully before taking out any loan. Successfully making auto loan payments on time can be an important step toward repairing a damaged credit history.

Source:
MySanAntonio.com


About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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