Not long ago we reported that sub-prime loans on automobiles are making a comeback. Despite the fact that 32% of all auto-loans are going to sub-prime customers, the vast majority of car buyers are making payments just fine.
According to a report in Ward's Auto, industry data firm Equifax says that auto-loans are at an all-time high mid-way through 2014 with a total balance of $902.2 billion, this includes both new and pre-owned vehicles. New vehicle loans total $163.5 billion; this is the highest balance since 2005.
While consumers have not yet fully recovered from the financial crisis the record amount of loans could be a sign that people are feeling more confident in the economy. Given the huge impact of the economic downturn, it is not surprising that there is a significant increase in sub-prime (credit score of 640 or lower) borrowing. Approximately 2.6 million loans through April went to sub-prime customers. Despite this trend serious delinquencies represent less than 1% of all the loan balances. This has created a win-win situation for lenders and borrowers.
"Lenders are responding to record low delinquencies by offering great rates and terms, while consumers are responding to the improving economic conditions by making the decision to purchase newer vehicles," -Equifax economist Dennis Carlson
If you are in the market for a new or pre-owned car and need to finance, now is a good time to be shopping. But remember to be aware of your budget and know that the longer the loan term, the more interest you will pay.
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