May 30, 2012 01:56 PM EDT
Car lenders ease credit standards and terms to spur loans

With the economy of the world still in flux, people are spending less money these days.  Not to mention, with quite a bit of the population currently out of work, this affects various industries. Along with lenders, the auto industry has been feeling its share of the credit squeeze. The average consumer is holding on to their older cars longer and repairing them instead of purchasing a new one.  One way to assist in fixing this problem is for financial institutions to become a little bit more lenient on lending to creditors.   

According to Reuters, lenders in the United States gave car buyers some of the easiest credit terms since the financial crisis in the first quarter as they competed to make more loans to borrowers they see as safe, a credit research company said on Tuesday.

The lenders also provided more money to people with subprime credit scores, cut interest rates and granted more time to repay, Experian Automotive, a unit of Experian Plc, said in a report. Rates of late payments and repossessions by lenders also declined in the quarter, Experian said. The relaxed terms make it easier for individuals to buy cars, which is good for car dealers, manufacturers and the economy. But more aggressive lending also increases the chances of another round of losses for banks if borrowers lose their jobs and cannot keep up their car payments.

Car loans proved to be safer than mortgage and credit card loans during the recession. Borrowers tend to make payments on cars a top priority because they need the vehicles to get to work or apply for jobs, studies have found. But average monthly payments increased by $3 or less for new and used cars as borrowers were given more time to repay and were charged lower interest rates.

The average time to repay loans increased by one month from a year earlier to 64 months for new cars and to 59 months for used cars. More than 9 percent of used-car loans were made for more than six years. Interest rates fell, on average, by 0.27 percentage points to 4.56 percent for new cars and by 0.06 points to 9.02 percent for used cars. The report also showed that Ally Financial Inc., the former General Motors Co mortgage and auto lender now 74 percent-owned by the U.S. government, has continued to push deeper into used-car lending compared with its competitors.

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