Odds Still Favor Car Loan Applicants

Richard Barrington
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

The news is out: consumer lenders of all types are tightening underwriting standards. Will this make it tougher to get a car loan? Somewhat, but approval rates suggest this is no time to shy away from applying for a car loan. Even bad credit car loan applications have more than a 50/50 chance of being approved. Better still, while loan approval rates may be down across the board, it will only be marginally more difficult for people with good credit to get a car loan.

Perspective on Car Loan Numbers

What is most widely reported about car loan approval rates is that they are down in the wake of recent concern about consumer borrowing. This trend only adds to what is becoming a crisis atmosphere surrounding the availability of credit. A little perspective, however, shows that the numbers are not that drastic.

In the early part of 2008, 90% of prime-rated applicants were able to get a car loan. This is down from 92.5% for the same period last year, but the numbers still mean that roughly nine out of ten prime applicants are able to get a car loan.

In other words, the perspective here is a question of whether one chooses to focus on the 2.5% decline in the approval rate for prime borrowers, or on the 90% of such borrowers who are still being approved for car loans.

Meanwhile, interest rates for prime borrowers have actually come down since last year, following the overall trend in interest rates. Both the odds and the borrowing terms are vastly in favor of applicants with good credit.

Even Bad Credit Car Loans Still Available

The going has gotten tougher for bad credit car loans, but even these are still available to most applicants.

It's important to note that even in easy-credit times, approval rates for bad credit car loans were still significantly lower than those for prime borrowers. While prime borrowers were being approved at a 92.5% rate early last year, bad credit auto loans only had a 68% approval rate.

This 68% has since dropped to an approval rate of 57%. Still, what this means is that even in a time of tighter credit standards, more than half the applicants for bad credit auto loans are approved.

What has changed, along with the drop in approval rates, is the amount of a car's value lenders are willing to finance. This may mean higher down payments will be required on bad credit car loans. In addition, interest rates on such loans may be higher, so careful budgeting is especially important.

The Wall Street Journal

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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