Car Loan Standards Loosening
Car Loan Standards Loosening
In recent times, banks and investors are lending more money to people to buy cars. According to the automotive division of Experian, the value of auto loans outstanding was $725 billion at the end of quarter two this year and this is 5.7 percent more than that of the previous year and also a record high ever since quarter one of 2009.
There is an increase in the number of banks telling the Federal Reserve that they are loosening the standards for making new car loans, and that the market for securities backed by auto loans has recovered.
The rise in car financing is supporting one of the few parts of the consumer economy that is prospering. Lenders are keen to increase interest income since earnings on alternatives such as U.S. Treasurys are very poor. Moreover, they perceive auto loans as mostly attractive and secure.
Auto loans are more appealing to lenders than long-term mortgages because they are relatively small and span three to six years only. Based on the most recent survey conducted by Experian in the previous year, there was an increase in auto loans, even subprime auto loans, by roughly 1 percent.
According to Jim Lentz, U.S. chief executive at Toyota Motor Corp., more banks are getting into auto loans and it is good that there are more subprime auto loans.
Meanwhile, Wall Street reported that the market for securities backed by auto loans has recovered. Approximately $50 billion in bonds backed by auto loans have been issued this year, more or less the $53 billion raised in all of 2011. The loans are initiated by finance units of auto makers and banks, packaged into securities, and then sold to investors.
So far this 2012, the quantity of securities backed by auto loans is roughly 33 percent greater than the 2006 pre-crisis levels. However, the quantity of securities backed by mortgages is about 70 percent lower than 2006 levels.
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Filed under: auto loans • car loan
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