Make us your home page

Auto loans much easier to get than a mortgage

Around the country, banks and other lenders are still being stingy in providing credit to ordinary consumers. Only the most financially stable of Americans can secure mortgages. Small businesses are having trouble getting loans. Credit card access is restricted.

But there's one notable exception, an area where lending has been surging: autos. Millions of Americans have found that it's becoming surprisingly easy to borrow money to buy a car.

New bank loans for autos totaled $47.5 billion in the first quarter of 2012, higher than at any point in the past seven years, according to Equifax. Interest rates are getting cheaper by the month. Even Americans with relatively poor finances can get auto loans: The average person financing a new car purchase had a credit score of 760, down 6 points from the previous quarter, according to data from Experian. For a used car, the average credit score was down to 659.

"The spigots are being opened," said Peter McNally, an analyst at Moody's. "The finance companies are really stepping in to fill a need."

There are a few reasons why auto loans are booming in an economy where credit is remarkably clogged. Vehicle sales have surged this year, as Americans are finally starting to trade in their aging cars and trucks. The auto industry sold 7.3 million units in the first six months of 2012, up 14.8 percent from the previous year. The market for, say, houses hasn't been nearly as robust.

But there's another, less-noticed factor: Investors and private equity firms are rushing to buy securities made up of bundles of car loans, seeing these assets as both safe and lucrative. In the first six months of this year, the nation's largest auto lenders, such as GM Financial and Santander Consumer USA, have pawned off $10 billion of their subprime auto loans on investors, a 20 percent increase over the same period last year. That gives these lenders more capacity to loan to consumers with questionable credit histories and, in turn, helps drive auto sales even higher.

It may seem surprising that private equity firms and other investors are willing to pour billions into auto-backed securities after getting burned by similar mortgage-backed securities. But, analysts say, the auto market is different from housing in several key respects.

For one, Americans appear to be less willing to default on their car payments than to walk away from their houses — even in the depths of the recession, auto loans performed better than most. And, in the event of a default, it's easier for a lender to repossess a car and sell it off, especially right now, when prices for used cars are so high.

Yet the fact that the subprime auto market is expanding so rapidly — with some buyers paying interest rates in excess of 10 percent — has led to some concern.

Auto loans much easier to get than a mortgage 07/06/12 [Last modified: Friday, July 6, 2012 8:09pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.

Join the discussion: Click to view comments, add yours

  1. Federal agencies demand records from SeaWorld theme park


    ORLANDO — Two federal agencies are reportedly demanding financial records from SeaWorld.

    Killer whales Ikaika and Corky participate in behaviors commonly done in the wild during SeaWorld's Killer Whale educational presentation in this photo from Jan. 9. SeaWorld has been subpoenaed by two federal agencies for comments that executives and the company made in August 2014 about the impact from the "Blackfish" documentary. 
[Nelvin C. Cepeda/San Diego Union-Tribune/TNS]
  2. Legalized medical marijuana signed into law by Rick Scott

    State Roundup

    TALLAHASSEE — Gov. Rick Scott on Friday signed into law a broader medical marijuana system for the state, following through on a promise he made earlier this month.

    Gov. Rick Scott signed legislation on Friday that legalizes medical marijuana in Florida.
  3. Line of moms welcome Once Upon A Child to Carrollwood


    CARROLLWOOD — Strollers of all shapes and sizes are lined up in front of the store, and inside, there are racks of children's clothing in every color of the rainbow.

    At Once Upon A Child, you often as many baby strollers outside as you find baby furniture and accessories. It recently opened this location in Carrollwood. Photo by Danielle Hauser
  4. Pastries N Chaat brings North India cuisine to North Tampa


    TAMPA — Pastries N Chaat, a new restaurant offering Indian street food, opened this week near the University of South Florida.

    The menu at Pastries N Chaat includes a large variety of Biriyani, an entree owners say is beloved by millions. Photo courtesy of Pastries N Chaat.
  5. 'Garbage juice' seen as threat to drinking water in Florida Panhandle county


    To Waste Management, the nation's largest handler of garbage, the liquid that winds up at the bottom of a landfill is called "leachate," and it can safely be disposed of in a well that's 4,200 feet deep.

    Three samples that were displayed by Jackson County NAACP President Ronstance Pittman at a public meeting on Waste Management's deep well injection proposal. The sample on the left is full of leachate from the Jackson County landfill, the stuff that would be injected into the well. The sample on the right shows leachate after it's been treated at a wastewater treatment plant. The one in the middle is tap water.