car loansAuto loans are easier to get now than they have been in years. That's the conclusion of a new report from credit research firm Experian, which said Tuesday that during the first quarter U.S. lenders gave car buyers some of the best terms since the financial crisis.

Why such generosity? Because more lenders are competing for your business, Experian says.

If you're shopping for a car -- especially if your credit is less than perfect -- you already know why this is good news.

With more lenders competing for your business, the terms of your loan -- things like the interest rate you'll be paying, and the amount of time you have to repay -- are likely to be better than they would have been a year or two ago. For some people, that takes the pressure off trying to keep that old jalopy running for another year.

And what's good for car shoppers has been good for the automakers, too: Toyota's (TM) sales were up about 12% for the year through April, and Ford (F) has seen its sales rise about 5%, as U.S. auto sales have picked up in recent months.
This is another sign that things are getting better -- or at least, getting back to "normal" -- in the U.S. economy. But is that really a good thing?

Will All This Lending Lead to Trouble?

Some may ask if all this competition to lend is a good thing. After all, banks like Citigroup (C) and Bank of America (BAC) got in trouble not so long ago for making too many bad loans -- trouble that took the economy down with it.

It's natural to wonder whether more relaxed lending standards in the auto industry could lead to a repeat performance. But analysts say that's not likely.

They point out that auto loans are safer for the banks than the mortgage and credit card loans that contributed to the financial crisis. "Subprime" car loans -- loans to people with credit scores below 680 on Experian's scale -- typically have lower default rates than the subprime mortgages that got so many banks into trouble back in 2008.

Why? It's because people need their cars to get to work. Since it's relatively easy for a lender to repossess a car, cash-strapped borrowers are much more attentive to their auto loans and tend to make their car payments a high priority.


Before You Sign on the Dotted Line...

As tempting as good rates on a car loan may be, buyers still must consider the bottom line. The fact is that cars are not getting any cheaper.


Experian says that the average new-car loan is up to almost $26,000. As new cars have become more "loaded" than ever -- loaded with elaborate safety features, and the infotainment gizmos once seen only on luxury cars -- their costs have risen sharply.

All the great features can make your current car seem like a tired old ride in comparison. But buyers still need to shop carefully, and pay attention to the true cost of their coveted new ride.

At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford. The Fool owns shares of Ford, Bank of America, and Citigroup. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford.



Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Add a Comment

*0 / 3000 Character Maximum

37 Comments

Filter by:
Ronie Barcoma

Once you are trapped there is no way out. " It's called "yo-yo financing," and it's what happens to car buyers (particularly ones with so-so credit histories) who take possession of an automobile before their financing arrangements are complete. If their financing falls through, dealers can pressure the buyer into a revised deal with extra costs or fees -- or move to repossess the car. " Very tricky for some car dealers. A big help to enlighten the readers. http://www.iquestintl.com

July 01 2012 at 9:52 PM Report abuse rate up rate down Reply
Ronie Barcoma

Once you are trapped there is no way out. " It's called "yo-yo financing," and it's what happens to car buyers (particularly ones with so-so credit histories) who take possession of an automobile before their financing arrangements are complete. If their financing falls through, dealers can pressure the buyer into a revised deal with extra costs or fees -- or move to repossess the car. " Very tricky for some car dealers. A big help to enlighten the readers. http://www.iquestintl.com

July 01 2012 at 9:51 PM Report abuse rate up rate down Reply
KLS

Hm. I must be the only person in America who cannot get a car loan because: I do not have 5 Visas, MC's AMEX's, etc or a store credit card (Macy's, JCP, Sears, etc). We went for a car loan a couple of years ago, and the dealer said we did not qualify because we did not have 'enough credit'. Um, okay, so would it be better if I had thousands of dollars in credit card bills? Really? So, we did not get a vehicle from this dealership. A few months later, I get a phone call from them asking if I had resolved my issue in needing a vehicle. (yes, I bought from a private seller.) I then found out that they ran my and my spouse's credit just before calling me. This was 3 months later! I was furious! Yes, they had our permission to run our credit the first time when we were there in person but NOT to do so three months later then have the nerve to call me asking if we could now try to work out a deal. I think it did impact my score and my spouse's score as well. Disgusting. So, next time you go to a dealership, ask them to either give you the paperwork or shred it in your presence so this does not happen to you.

June 04 2012 at 8:26 AM Report abuse rate up rate down Reply
vlady1000

A car loan has to be one of the dumbest things. Why would anyone pay interest and higher insurance and plate costs for an asset that depreciates (especially as fast as a car does)? If you want a new car, save up for it, then go buy it. If you have $2,000 then buy a car for $1950 and $50 for a repair manual. In 35 yeaqrs of driving, I have never leased or barrowed for a car/truck/motorcycle and almost never carried accident insurance. I would hate to guess how much I have saved in that time.

June 03 2012 at 11:05 PM Report abuse +1 rate up rate down Reply
jrp1947

Without jobs this is an excerise in being stupid. fewer jobs and easy money put us where we are. We need second chances for many people worthy of it but at teh same time we have to have more than minimum wage jobs to sustain the recovery. Jobs at McDonalds is not going to cut it because there is no ladder up the economic scale for workers to compete and climb. We consume but we need to produce more than we consume and that is the bottom line. we also have to realize that the economy both in this country and around the world has to readjust itself and take the losses required to realign ourselves with the current situation.

June 03 2012 at 10:39 PM Report abuse rate up rate down Reply
rich lapinski

here we go again!

June 03 2012 at 8:32 PM Report abuse rate up rate down Reply
exnavy2003

yep--Let's start out with easy credit all over again--Does any one pay attention? HAS ANY ONE LEARNED FROM THIS RECESSION? People love to give easy credit for houses,cars and so on because they know there are enough idiots who feel they DESERVE the car or house they are getting.Forget earning the right as it used to be.The people who feel its owed them or they deserve the right to easy credit are the ones who can't even spell APR or ARM and don't have a clue what those things are,how to calculate them and even how those things effect them.It's sad the ignorance of the average consumer and the levels they will allow others to screw them due to them feeling they deserve things and them not having a care or a clue of what they signed and once the screwing commences they bleat like sheep--"i didn'ttttttt knowwwwwww--They didn't explain it to meeeeeee.I can never repay it.Feel sorry for meeeeeee.It's not my fault"F*****G idiots.

June 03 2012 at 8:11 PM Report abuse rate up rate down Reply
alpambuena

if you want a car, but you have crappy credit...pretend that youy have car payments...and take that money, and throw it in a shoe box...at the end of the year, if you did not rob the show box, and you can make out ok...then take that shoebox, and go to a local dealer, and bargain...also get pre-approved by some lending institution...not the car dealer....this way, when you walk into the dealership, you control the situation, not the dealer. another way, is to join a credit union, then have the credit union work with you on what you need to do, for them to approve a loan for you. ...also, clunkers are great, and get to know a neighborhood mechanic, because these cars are often great to get as a second car, or something to drive, while you save up for something better.

June 03 2012 at 2:31 PM Report abuse rate up rate down Reply
1 reply to alpambuena's comment
Gregory Clark

Not bad advice. Thanks.

December 19 2013 at 12:43 PM Report abuse rate up rate down Reply
schlinkhoff

Auto Makers seem to be the only Companys that understand you have to give to create a Demand.

June 03 2012 at 1:33 PM Report abuse +1 rate up rate down Reply
Alex Gonzales

I don't think I need a reminder that prices have risen sharply lol. Bought an F-150 4 years ago, the same trim is now 45K on the lot!! Seriously??

June 03 2012 at 9:36 AM Report abuse rate up rate down Reply
1 reply to Alex Gonzales's comment
vlady1000

Yep, I looked the other day (for fun) to replace my '07 Silverado sometime in the next couple years. Even though I can afford to replace, I will not at these high prices. So I keep it another 5-10 years, fine with me.

June 03 2012 at 11:05 PM Report abuse rate up rate down Reply