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Finding an Auto Loan in a Depressed Market

Mar 12, 2009
It's no secret that the economy is suffering. The rising number of layoffs, the incredible financial bailouts given to banks and automakers by the federal government and the daily fall of the stock market makes it obvious. While the economic meltdown is bad news for manufacturers and banks, it's worse news for consumers, especially those in need of a new vehicle. Thanks to tighter lending restrictions and a reluctance on the part of banks to take any risks with their financial products, many consumers find themselves unable to get an auto loan at all.

Why has it become so difficult to obtain an auto loan in today's market? First, banks and other traditional lenders to whom consumers once turned for these loans have changed their lending criteria by a substantial amount. Once, even consumers with moderate credit were able to get a quality auto loan. However, today, only those with perfect credit are able to do so. Second, lenders are avoiding taking any risk, whatsoever, at this point. That means that even those consumers who are able to get a loan must often put down a sizeable down payment. Where does this leave subprime consumers? Where can someone with poor or slow credit turn for answers? Actually, there are ways around the conundrum.

1. A Larger Down Payment - While it has always been common practice for most consumers to make a down payment, today's lenders demand a higher down payment than usual. If you have perfect to good credit, putting down a larger down payment will help you get that loan. Some lenders are even willing to take a chance on consumers with moderate credit, provided the down payment is high enough. Lenders want consumers to be vested in the vehicle, to think twice about walking away from it. A higher down payment does just that.

2. Repair Your Credit - While pulling your credit score out of the depths might sound like a lengthy plan, it is the best way to get an auto loan with decent terms. Often, it is the only way to get an auto loan at all. Take time to pay off your outstanding debts. Make sure that all debts and bills are paid on time, as well. This will help boost that credit score into the area where lenders will once again consider you a viable risk.

3. Reduce Your Debt Load - Many consumers are unaware that their level of debt affects how lenders view them. For instance, even if you have good credit, if your debt-to-income ratio is high, many lenders will not consider you for a loan of any type. Take the time to reduce that ratio by paying off debts, liquidating assets or increasing your income and you will once again be attractive to a wide variety of lenders.

4. Consider Alternative Lenders - While banks, credit unions and automakers are the three most common sources of auto loans, other sources exist. Specifically, the Internet has led to a large number of lenders operating almost exclusively in the virtual world. These lenders are often less affected by the current economic situation and, as such, are able to provide financing for consumers with less-than sterling credit.

5. Shop Around - Finally, never assume that just because your credit is poor, you have no recourse. Take your time and shop around with the various lenders available. Use the Internet to compare rates and lending requirements, speak to different dealerships about their offers and even consider banks and credit unions. Shopping around often yields the best results and may provide you with a tenable auto loan.
About the Author
Jacob Hertz is a regular blogger and writer on the credit industry for BadCredit.com. His articles about the auto loan industry always accurately depict the status of the credit market for both consumers and lenders.
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