Car Loans Easier To Get As Interest Rates Stabilize

July 20, 2010

Lenders are easing credit restrictions as car loan interest rates settle to manageable levels. The result is more consumers qualifying for car loans, including sub-prime borrowers who have had the most difficulty getting another vehicle. According to’s July 15, 2010 Interest Rate Roundup, the national average 60 month new car auto loan is now 6.95 percent. The average 36 months used car loan is 7.67 percent.

Life Has Changed
In the fast moving days before the economic collapse, the majority of all sub-prime loans were approved: 6 out of 10. Borrowers with credit scores below 620 are categorized as sub-prime. Loan approvals in this category fell to just 1 in 20 following the darkest days of 2008-09. Things have recently improved and sub-prime loans are now standing at a 1 in 10 approval rate. However, those in this category who receive approval are still required to provide a substantial down payment. They also pay a hefty premium on interest rates, usually 10 percent and above.

Things are also better for middle tier borrowers, or those with a credit score between 620 and 750. About 8 out of 10 middle tier borrowers receive approval on their car loans. This is up from 7 out of 10.

A full 9 out of 10 top tier car loan applicants now receive approval. A top tier credit score is 750 and above. The top tier approval rate was just 7 out of 10 in late 2008.   

Zero Percent
Even though it’s getting easier to qualify for car loans, don’t expect to receive approval for that zero percent financing offer at your local car dealer unless you have a top tier credit score. Car manufacturers make the offer of zero percent to only those consumers with the highest credit scores.

If you don’t qualify for the lowest discounted rate at the dealership, chances are you’ll still qualify for a rate lower than you would get at your bank, credit union, or online lender. The exact rate is determined by the tier your credit score falls into, the term of the loan, and the offer from the car maker.

Know Your Credit Score  
It’s always good to know your credit score before walking into a car dealership. It’s also better to be pre-approved with a lender in case you run into any difficulty there. This can include the dealership offering a higher interest rate than what you actually qualify for. Receiving pre-approval eliminates the risk of paying more than you should.  

And remember that just because the average national auto loan rate (from dealers and financial institutions) is close to seven percent, it doesn’t mean you have to pay that rate. Car loans at banks or online lenders are as low as four percent. Some credit unions are offering rates lower than that. The rate you qualify for is determined in part by your credit score, in part by other factors such as income and current debt, and in part by a particular lender’s rates.

The savvy car buyer shops for their loan rate as aggressively as they work to lower the purchase price of the car they want to buy.

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