You would think that automakers would make it as easy as possible for people to buy cars at their lots. For some car buyers these days though, the only thing getting in the way is a lack of available financing. It used to be that it didn’t make much than a heartbeat and a driver’s license to get a car loan from a dealership. The strain on the automakers has taken its toll on their financial divisions as well.

One of the companies to watch when measuring the volume of car loans being issued is the financial arm of General Motors, GMAC. They should be in a position to issue loans because they have received $5 billion in TARP funds to use as a base to lend from. Even with the massive cash infusion, though, car lending is way down. During the first quarter of 2008, the company issued more than $13 billion in loans to car buyers. This year, that number was down to $3.4 billion.

One of the biggest factors in getting a car loan is the credit score. Once GMAC had the TARP money in their pockets, they announced that they would issue loans for consumers with credit scores as low as 621. A credit score lower than this would classify a borrower as a subprime credit risk, and in the month of May only 20% of subprime loan applications were approved. For borrowers with a credit score above 750, 89% were approved, also much lower than in the past.

There are a few things you can do to obtain financing. First, shop around. Some dealerships have access to better funding sources than others. While some dealers are seeing very few approvals right now, others are seeing improvement in the number of approved applications compared to six months ago. Also, look at dealerships that are backed by foreign automakers as they are often in a stronger financial position and more willing to work with borrowers.

Finally, don’t forget to check with credit unions, which have become major players in the market for car loans. In 2002, credit unions made up only 13% of the total market for auto loans. They now handle 20% of all the car loan business in the country. You may not find financing from your local dealer, but your credit union could still help you take advantage of the great discounts and rebates available at local car lots.

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Tags: Auto Loan, credit union, financing, subprime

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