Car sales and loans ‘on fire’
Many of the auto finance loans you see today have come from school expenses. There has been a rise in auto lending going into the 4th quarter of the year.
Auto lending has grown the fastest that it has in seven years, Total outstanding debt on auto loans and leasing increase last month by more than $50 billion or 7% to $767 billion at a one year level.
Experts say that “auto financing is on fire”. Its pent-up demand from the recession. Sales fell off because of the recession and more car buyers went towards used cars to buy rather than buying a new car, or they delayed buying a car altogether. What most people do now is they try to extend the life of the car with repairs rather than buy new. Right now used car circulation is at an all time high.
It probably helps that manufactures are willing to aggressively pursue buyers and extend their credit. Auto finance companies, many of which owned by manufacturers themselves, are dominating lending with low interest rates and extending the auto loan terms. So borrowers with low credit scores can get an auto loan. Almost 30 percent of auto finance company loans and leases are being extended to borrowers with a credit score of less than 620, Moody’s reported.
Auto finance companies are willing to take more risk than banks are because banks are still struggling and they can’t weigh the cost of the car deal. Robust prices for used cars also help to reduce auto financing firms’ risk because even if an individual defaults on a loan, the value of the collateral is still relatively high.