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Archive for May, 2013

Auto Loans Hit 8-Year High, Equifax Reports

Auto loan originations in the first two months of 2013 are at highest level in more than eight years, showed the latest National Consumer Credit Trends Report of Equifax.

The consumer credit reporting agency reported that new auto loans in January and February of this year skyrocketed to $69.6 billion, more than 70 percent greater than the recession figure of $40.2 billion in 2009.


According to Amy Crews Cutts, chief economist of Equifax, the strong demand in light trucks and a shortage in secondhand trucks are major factors in the 3.5 million new auto loans that were originated in this time period.

“Light trucks in particular are in demand for the newly energized housing construction trade and there is a lack of supply of used trucks available so prices on these vehicles are currently rising,” said Crews Cutts.

Dull Recovery

The auto industry may be thriving but the 15-million forecast for car and light truck sales by the end of 2013 is more than 10 percent short of the all-time peak recorded in 2000 when more than 17 million vehicles were sold.

The industry began experiencing successive declines since then until the number of vehicles sold plummeted to 10.4 million towards the end of the recession in 2009.

The renaissance of auto sales is not entirely attributable to the recovering U.S economy which is actually dull.

Interest rates in auto loans remain to be low due to the efforts of Federal Reserve which is expected to end next year or in a couple of years.

Moreover, banks have loosened credit standards which make auto loans more easily available to consumers with so-so credits. They are becoming more confident in the lending business as fewer people end up sour in their loans. The Equifax report showed that serious delinquencies on auto loans fell in April of this year.

Nevertheless, the rising demand for vehicles hints a bettering economy as people become more optimistic about it.



Financial Programs Get Low-Income Families on Road to Credit Freedom

Christina Hubbert was spending two hours each way going to and from work through public transportation. Recently, she bought a 2006 Honda which freed up life for her.

Hubbert, whose story appeared in, suffered the hassle of daily commute, jeopardizing her finances and even her time for her three-year-old daughter. She lives in suburban Atlanta and had to wake up at 5 every morning so she can arrive at work by 8.

With the 2-hour transit from work, the 24-year-old single mom often paid the late fees in the day care when she couldn’t make it at 6:30 P.M closing time to pick up her daughter.


Hubbert told TODAY’s Erica Hill that there was no room to relax or breathe. All that she has and could do is to keep going.

She got her car with a no-down-payment auto loan at 8 percent interest through Ways to Work, an auto loan program that helps low-income workers improve their credit and get a low-interest financing for used cars.

Ways to Work President Jeff Faulkner said that the program helps its members take steps to repair their credit through series of financial workshops. He made it clear that it is a “hand up” where recipients buy their cars, pay the interest on it and the fee if they are late on the payments.

Similarly, Prescott Financial is helping people with bad credit get behind the wheel with an auto loan that they could afford. They accept their customers’ applications regardless of the credit and find the lender with the best rate.

Such financial institutions are blessings to people like Hubbart who maxed out her credit cards when she was in college and made some unwise financial decisions. With a bad credit and poor financial life, she could only qualify for financing with an interest rate not lower than 18 percent.

Faulkner said that owning a vehicle can affect one’s financial success. He shared a study where the findings showed that people who have cars have more job opportunities than those who take the city bus.

Today, Hubbert no longer runs late to the day care and spends more time with her daughter. She is also saving more money by simply fetching her daughter on time and not having to pay up to $500 a week, as she used to, for late fees.

Hubbert now travels about 45 minutes—and no longer 2 hours—to get to work. With an affordable car financing, she does not have to take two trains and a bus anymore.

Programs like Ways to Work and institutions like Prescott Financial leave low-income individuals like Hubbart dreaming of a better credit and a healthier financial life.

Find more information about Prescott Financial here.



Car Buying Tips for People with Bad Credit

Do you have a bad credit? If you’re worried about getting an unfair car deal because of your credit, worry no more. It is possible to get a nice car at a fair price even if you have a less-than-perfect credit. Moreover, banks and other auto loan providers have loosened their credit standards. Interest rates are also still lower. But in spite of this good news, you need to achieve a successful car purchase slowly but surely. Here are some tips you should take to heart when buying a car with a bad credit.

1. Ask yourself: Do I really need to do this?
Before anything else, find the answer to this question first. Do you really have to buy a car now even if you still have a bad credit? An auto loan rule of thumb says that high credit score gets low interest rate and low credit score gets high interest rate. If you can identify with the latter more than the former, you might want to think twice about purchasing a car now.


2. Set the budget and stick to it.
If it is urgent to buy a car, set your budget first before shopping for cars. To find out how much car you can afford, you can use online calculators that compute for this. You can also take a good look at your monthly cash flow. Financial advisers say that the remaining amount from your income after all the priority expenses are allocated for is the amount you can shell out for a car every month.

However, you shouldn’t forget about the ownership costs which include gas allowance, maintenance and repair, warranty, insurance, replacement parts, and the like. Can your current income sustain these expenses over the life of the auto loan? Make sure it can before actually buying a car.

3. Wait and fix your credit.
If your answer to item number 1 is no, wait and fix your credit for the meantime. This is the best thing to do so you can avoid the high interest rates. But how can you fix your credit?

There are several ways to improve your credit. One is getting all your debts in a list and paying them off one by one. This cleans up your payments history and certainly builds up your credit. Another way is to get a secured credit card where you can start afresh in making payments on time.

4. Explore all possible options.
This applies to both financing and dealerships and whatever kind of credit you may have. Auto financing is widely available—and to every type of credit. Auto loan providers—banks, credit unions, independent financial institutions, online lenders and dealerships—are in a tight competition for the subprime market. You can surely find a car loan despite your bad credit. However, you need to find the best rate by shopping around to avoid abusive deals.

There are also a lot of dealerships around your residence. Try checking out at least three and compare their prices. Keep in mind that dealerships do not have the same price for a single vehicle. That’s especially because of the extra fees they charge.

Shopping around is not just a practice recommended for bad credit borrowers but also for those with good credit.

5. Beware of scams.
You must understand that unscrupulous and fraudulent lenders and dealers often pull their tricks on bad credit borrowers, taking advantage of their credit situation. Don’t let yourself be a victim. Before heading to the dealership, make sure you’ve read about scams and learned to avoid them. It’s important to be on your guard while purchasing a car with a non-stellar credit.



What Really Happened to Automotive Lending in 2011?

The automotive industry has changed over the past 4 years mainly due to the lack of lending. Pre 2009 lending guidelines were aggressive and flexible. Lending Institutions across the country were giving automotive dealerships free lunch, golf outings, and trips to pro baseball and football games as a way to entice them to send more business.

Now lets take an in-depth look at just how the lending institutions work. First, you must understand that 95% of all indirect lending institutions have what is known as “Field Reps” or Bank Relationship managers. These people are paid a base salary (that most people could not live on) then they get a commission per loan that the dealerships send to them for financing. Thus, you have the perfect storm once again self-inflected by the lending institutions.

So, lending institutions were sending employees into these dealerships to in essence “bribe” dealerships to send them more loans for approval. Well, let’s look at what happened once all of these bad credit car loans started to have customers default on the loans? First of all, the lending institutions started blaming the dealerships for these defaults. I know it sounds crazy but they really did. They aggressively approved all of these loans but when they went bad they started blaming certain dealerships.

Now why would they do that?

The answer is very simple. These fat cats wanted to keep their job, insurance, and retirement packages so when they started receiving heat from the powers to be. They started blaming the car dealerships for sending them loans that didn’t pay. Now in my house most families understand that if they approved a loan and charge a customer 29.99% interest rate then you would think that they would know the customers are most likely not going to all pay on time. By blaming the dealerships they started telling certain dealerships that they are going to have to pull their agreement and cannot do business with them. Let me explain what that means. If you have two dealerships side by side and a customer with bad credit walks into the first dealership and the banks will not conduct business with that dealership (because they send them bad customers) then they will turn that customer down for a loan. However, the same customer goes to the dealership next door and the banks are conducting business with them then they will approve that loan.

To put all of this together the lending institutions are still making loans to customers with bad credit however, they are picking and choosing what dealerships and what brands they want to finance, thus making several dealerships have to close their doors every year and violating our most sacred value in America today. They are choosing who and what product they want to succeed in this difficult market.

Even though most of this is unfair to most of us from the outside looking in, this is why it is important for those with bad credit to shop for a pre-approval online before shopping in today’s market.



New Car Sales Rise, Auto Loans Go Bad

New-car sales rose, although at a slower pace, by 8.5 percent year-on-year according to the latest data from automotive statistical data source Autodata Corporation. This may be a good thing, but more auto loans seem to be going bad.

John Rosevear, a contributor in a financial-services company The Motley Fool, observed that “some of the facts are disturbing” in the latest Experian Automotive report. He noted that both auto loan delinquencies and repossessions are on the rise.

Experian reported that 30-day and 60-day delinquencies increased 1.3 percent and 12.4 percent, respectively in the first quarter of 2013. Repossession rose by nearly 17 percent year-on-year.

However, despite the increases, Experian sees the figures as still lower than the rates in the recession years. Experian senior of automotive credit Melinda Zabritski said, “When you compare the current findings with previous years, they are still lower than the recession-level rates.”

Rosevear said, “The current increases are kind of an artifact of the recession.” He said that subprime lending went so low then and now it’s back. “That means more shaky borrowers are back in the market.”

As more auto loans turn awry for most borrowers, Rosevear sees the phenomenon as beneficial to automakers. With the growing subprime market, there is more opportunity for carmakers and dealers to make sales—just like during the recession years when financing was lucrative, giving automakers and dealers more sales in addition to their auto sales.

Rosevear said that there are automakers like Chrysler and Hyundai that are willing to venture in the subprime market.



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