If you’re thinking of buying a shiny new ride, your chances
of getting a loan are looking pretty rosy.
Since the financial crisis of 2008-2009 turned off the money tap, banks
have been stingy when it comes to doling out money to borrowers. They’re still throwing up stop signs when it
comes to home mortgages and business loans, but they’re giving the green light to
car loans in increasing numbers. A
federal survey backs up the trend, reporting that 20% of banks participating in
a recent study say they eased restrictions on auto loans, while only 3%
loosened up on home mortgages and 11% on credit cards.
The credit reporting agency Experian says that the number of
car loans in the U.S. rose by 5.7% last quarter, the biggest increase since
2009. Even sub-prime auto loans issued
to borrowers with low credit scores are on the rise.
Why are banks more likely to give you a loan for a car than
a house? One reason is the term of the
loan, which is three to six years for a car versus up to thirty years for a
home mortgage. The rational is that the shorter the loan, the less likely the borrower
is to default. Another reason that
lenders are favoring auto loans is that people are more likely to skip mortgage
payments than car payments because cars are easier to repossess than a house.
The total car loan figure hit $725 billion at the end of
June, giving a boost to the auto industry, one of the few business sectors
that’s doing well in our struggling economy. The figure reflects an 8.7% increase in auto
sales, versus a 5.9% rise in all other retail sales groups during the first
half of 2012. The average auto loan rate with a five year term was 4.4% at the
beginning of August.
The burgeoning numbers of auto loans ripples over to Wall
Street, where they’re bundled into securities and sold to investors. It’s
looking like auto loan securities will double this year, given that they’ve
already totaled $50 billion in the first half of 2012 and the total amount for
last year was $53 billion.
All of the above spells good news for people looking to
finance a shiny new road machine. New hybrid Lexus, anyone?