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The Plus Side of In-House Financing

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The Plus Side of In-House Financing

By: Mark Behnke, RVP Automotive Solutions

Let’s face it, many consumers are in the market for a new/newer vehicle but worry that their ‘less than perfect’ credit score will put the brakes on getting a good deal. As a BHPH dealer you can assure them to take heart: in-house financing and its rising popularity may allow more customers to get behind the wheel after all!

During the worst of the recession, stringent loan requirements shut out many buyers with poor credit, skewing the average credit score of car buyers very high, to a peak of 776 for new car buyers in early 2010. A credit analysis recently released by Experian Automotive found that more buyers with poor scores are getting approved, and adding their lower scores to the mix has brought average scores down almost to pre-recession levels. For new car buyers, the average score was 760 in the first quarter of 2012, just a few points higher than for that time period in 2008. 

"A few years ago, it could have been much more difficult to get an auto loan," says Melinda Zabritski, director of automotive credit at Experian Automotive. "A lot of lenders who specialize in subprime financing might not even have had the funds to lend."  But times have changed, she says: "It's a good time to buy a car."

This in-house financing and BHPH mode is allowing more and more consumers to not only qualify for a loan but also regain their financial footing. Car dealership slogans aside….here is good news for consumers who want a new set of wheels. According to Experian Automotive's report on the state of automotive financing from the first three months of 2012, this is what's happening:

  • Buyers with lower scores are getting approved. The average credit score for financing a new vehicle dropped six points to 760 and, for a used vehicle, fell four points to 659.
  • Lenders are making more loans. The report found that loans to car buyers with nonprime to deep subprime credit scores (from 679 to 550 and below) increased by 11.4%.
  • Buyers are getting bigger loans. The average loan amount for a new vehicle went up to $25,995, about $589 higher than the previous year. For a used vehicle, the average went up by $411 to $17,050.
  • Lenders are offering lower monthly payments. Low interest rates -- an average of 4.56% for new vehicles and 9.02% for used vehicles -- combined with longer loan terms can make payments more affordable, Zabritski says

These changes have been fueled by the fact that more consumers are paying back their loans as agreed, experts say. According to the report, the number of loan payments that were 30 days late dropped by 7.6% and those 60 days late dropped by 12.1%. In addition, vehicle repossession dropped by 37.1%. "When losses are low, lenders are able to do more lending and have better rates," Zabritski says. This is exactly what is happening in our current economic client.  In summary, there is a plus side to in-house financing, and the effects on the consumers overall credit!

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