CUs help borrowers buy cars in tight credit market

MADISON, Wis. (11/17/08)--The volume of car loans is dropping, captive finance companies are tightening credit, and interest rates have nearly doubled in third quarter. But consumers still can get a car loan at an affordable price through a credit union, according to several media sources.

During third quarter, the volume of car loans declined 6%, compared with third-quarter 2007. Average interest rates on car loans almost doubled from July to September with financing now as high as 39%, and borrowers are required to make larger down payments--averaging $2,000 down on a $20,000 car (Washington Post Nov. 13).

The 39% financing--offered by Nationwide Acceptance Corp. in Chicago to people with "perfectly awful credit"--is almost four times what local banks and credit unions charge, even for consumers with poor credit histories, reported The Seattle Times (Nov. 13).

Credit unions and banks still are lending to qualified buyers, the article said. It offered suggestions on how to get the best car deal. One suggestion: Shop for financing. "Talk to a credit union or bank, and compare those rates with what dealerships offer," the article advised.

In Jacksonville, Ark., Gwatney Cheverolet is one of several auto dealers turning to different sources--including credit unions--to finance cars after its captive finance company, GMAC, tightened its lending standards (Arkansas Democrat Gazette Nov. 13). The dealer is increasing its work with local credit unions and banks rather than GMAC.

In fact, Arkansas FCU is now its largest lender. Terry Vick, the credit union's chief lending officer, noted in the article that Arkansas FCU has lent 13% more in auto loans this year, compared with all of 2007.

She attributes the business to the volatile stock market. Members have pulled their funds from the market and deposited them in the credit union. As a result, there's plenty of money to lend out.

Edmunds.com, an online resource for consumer automotive information, agrees it is possible to get a car loan in times of economic stress. It called media reports that consumers are unable to get auto loan financing as "often overstated" (BusinessWire via MarketWatch Nov. 14).

Edmunds.com pointed out several trends, which credit unions can help educate members about:

Consumers with average credit scores will be required to make a down payment as high as 20%;

Lenders are restricting the length of loans; six-year loans may no longer be an option for many consumers;

The minimum credit score required for an auto loan has risen to around 500;

The credit score required for the best loan rates has risen to at least 720, up from 700 a few months ago; and

Consumers with the best credit can expect an interest rate as low as 5.95%, while those with average credit may see rates as high as 12.5%.

Among the strategies Edmunds.com outlines: "Look to credit unions, local banks and online lenders as alternative sources for auto loans."

courtesy of cuna.org