New car loans becoming easier to obtain

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Bank window sign advertising new car loans at a low interest rate.

Interest rates are slowly climbing as less-qualified buyers are accepted for new car loans. (Photo Credit: CC BY-SA/The Truth About.../Flickr)

Bloomberg reports that new car loans are becoming easier for consumers to obtain. Auto industry experts view this as an indicator that new car sales may continue to grow, something the United States hasn’t seen since “Cash for Clunkers.”

New car loans making gradual return

Ford Motor Company chief economist Ellen Hughes-Cromwick told Bloomberg that credit across the automotive industry has begun to flow more readily. But it could take a year or more before significant gains are noted. “We should see consumer credit begin to evidence some recovery,” she said, “but it is a slow go.”

Retailers see bests sales in over a year

New car retailers surveyed by the Automotive News Data Center such as Group 1 Automotive and CarMax Inc. reported that September sales of new vehicles rose significantly. The adjusted annual rate was 12.2 million, which reflects the most successful sales pace since August 2009. But there’s still ground to cover – the annual average from 2000 to 2007 was 16.8 million. A consistently high unemployment rate is largely to blame, reports the U.S. Department of Labor.

Lack of credit isn’t to blame

Peter DeLongchamps of Houston-based Group 1 Automotive told Bloomberg that new car loans are available for more interested customers than in recent months. “But for current sales levels to increase, we need additional showroom traffic.”

More subprime new car loans

According to CNW Research, the number of subprime new car loans issues was up almost 10 percent in September 2010, which reflects the highest increase in such loans since February 2008. From January through September 2010, 6.8 percent of all new vehicle sales were of the subprime variety in terms of credit, which is 5.7 percent higher than the total in 2009.

Higher interest rates mean credit is loosening

Data compiled by Edmunds.com for major automakers like Ford and GM support the idea that new car loans are moving at an elevated pace, following the recent lull. September data from Ford shows that new car buyers got a 5.23 percent average APR on new car loans, up from 5.07 the previous month. GM showed only a modest rise, from 5.23 in August to 5.25 percent APR in September, said Edmunds. The increase in average APR means that less-qualified buyers are securing loans.

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Sources:

Bloomberg

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