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Auto Loan BasicsNotes From The Road

Can You Get an Auto Loan Today?
By James M. Flammang/autoMedia.com

If You Want to Finance a New Car or Truck, Prepare for Tougher Qualifications -
 
Not so long ago, buying a car on credit was stress-free. Hardly anyone had to go without wheels. Through the 1990s and into the 21st century, dealers were selling cars for little (or even nothing) down, and lengthening loan terms to six and seven years, to keep monthly payments low.

Those days are gone. As the nation surged into financial crisis in late 2008, lending agencies tightened the purse strings–and knotted them tautly. Lenders have been limiting loans to shoppers with high credit scores, leaving subprime and near-prime folks out in the cold.
 
It’s Not You, It’s Me
"Financing sources are tending to be more restrictive about who they'll lend to, said Jack Tracey, executive director of the National Automotive Finance Association. These limits have "little to do with the individual borrower," Tracey added. They're more a reaction to the overall financial situation.
 
CNW Marketing Research found that subprime loan approvals have fallen sharply. In 2007, two-thirds were approved. In April 2008, the figure was 47 percent. By September, fewer than 23 percent of subprime applications were approved, dropping near 14 percent in October. Dealers also had to try nearly twice as many lenders to get an approval.
 
Art Spinella, CNW's president, reports "more cash buyers than we've seen in years." Many are selling household assets, especially "discretionary purchases," to buy vehicles outright.
 
If paying cash isn't an option, what might you do to be loan-worthy in today's volatile, rapidly changing economy?
 
Keeping Score
Credit scores are crucial, though they don't reflect the full picture of a person's financial stability. They focus solely on factors that can be measured. Lenders rely totally on what are called FICO scores, which range from 300 to 850. Prime customers – the ones who can still get loans at reasonable rates – rank somewhere above 700 (depending on the lender). Near-prime hovers around the mid- to upper-600s. Scores below 620 or so send the applicant into subprime territory. If those latter folks are able to get loans at all, they can expect to make a down payment of at least 20 percent.
 
"Most people who don't have good scores have missed payments," said Maxine Sweet, vice-president of public education at Experian. Worse yet are those who've missed payments often, though a late payment isn't necessarily as much of a demerit. Scoring companies consider "utilization, which shows "how much you do owe, compared to what you could owe." Sweet explains that "having a credit card account is one of the most positive" factors, because the amount paid each month is up to you. "It takes more self-management."
 
Consumers can obtain copies of their credit report from several online sources, including freecreditreport.com. Information on improving your credit score may be found at nationalscoreindex.com (sponsored by Experian).

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