Two Current Trends for Auto Loans

Many people were not sure if the Cash for Clunkers program, as well as the general state of the economy, would have a positive or negative impact on the business of auto loans. However, according to a new study published by TransUnion, the well-known credit reporting bureau, some interesting and unexpected trends have emerged. These trends can actually bode well for anyone shopping for a car loan in the next few months.

Trend #1: Delinquency Rates Have Declined The first interesting trend they noted was that auto loan delinquencies declined during the fourth quarter of 2009. Delinquencies fell 5.81% on a year-to-year basis. The rate of delinquencies that were over 60 days past due remained steady at 0.81%. TransUnion linked this trend to the Cash for Clunkers program and other new, low-risk loan programs. By lending smarter, banks and credit unions are decreasing their risk and the likelihood of delinquent car loans. For the consumer, this means that while restrictions on auto loans have tightened to decrease risk to the lender, you are more likely to be saddled with an amount of debt that you are capable of paying off.

Trend #2: The Amount of Auto Loan Debt Has Declined In addition to fewer delinquencies in auto loans, TransUnion found that the overall amount of debt has declined. Tracking a year-to-year comparison, the credit bureau found that the overall amount of auto loan debt has fallen 1.1%. The average amount for auto loans per consumer is now $12,568. For the consumer, this means that auto loans will be given in lower amounts. So while you may want to purchase a car at $15,000, a lender may choose to limit your credit line to $12,000 in the interest of decreasing the amount of risk they assume. This means you will need to be more prepared when applying for a loan; little changes, like cleaning up your credit report, can make a huge difference in this economic climate.

Both of these trends have bucked the way the auto loan industry has been heading for the past decade. With the exception of the year 2003, every final quarter since 2000 has seen an increase in the amount of delinquencies and an increase the amount of auto loan debt per consumer. This means that consumers will need to be savvier about applying for car loans, making sure to apply for credit limits that are within their means. As lenders tighten their belts to reduce the amount of risk they take on, consumers will need to be realistic about the amount of debt they can obtain.

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