Learn How To Get The Best Deal

As Auto Industry Rebounds, Auto Lending Follows Suit

Auto Loans

One sign that the economy is in recovery is that the Big Three automakers are posting either lower than expected losses or posting outright profits. Another good sign is that GM recently returned the major portion of its cash loan to the Fed, meaning that they no longer owe the federal government or the American people any money. This is because sales have been going up across the board. We can’t paint the picture as all roses and honey just yet, but it’s definitely looking better than it was this time last year. So, exactly what’s driving this portion of the recovery?

 Banking Experts: Loans at Highest Levels Since End of Recession

 Not very many Americans can afford to go into a car dealership and pay cash for a car or truck, whether it’s new or used. And, by the same token, not many Americans have an available $10,000 to $40,000 of credit on their credit cards to use, either. That means loans.

 According to most banking and financial sector experts, bank loans are at their highest level since June of 2009, when most pundits agree the recession “officially ended”. In hard numbers, what this means is that lenders have loaned a staggering 134.3 billion dollars just for auto loans in the first quarter of this year. This is an increase of at least 56% over the same time period during 2009.  Experts agree that this increased lending will help prop up an economy that only experienced a disappointing 1.5% growth during that time period.

 All this lending seems to be spurred on by near-zero interest rates that the Fed has published for the past 43 months. Lower rates to banks mean lower rates to consumers, and this translates to lower monthly payments. And, lower payments mean payments that are more affordable. Some experts feel that this increase in lending will cause the jump start to the economy that the country needs.

 However, the near-zero interest rates aren’t the only reason that lending has increased by banks. Sources indicate that consumers, who make up more than 70% of the overall economic picture, have cut debt tremendously, partly helped by the fact that housing prices have been on the rise lately. When consumers have less debt, banks are usually more willing to lend to them, and this definitely appears to be the case. Banks have also increased their own liquidity and pumped up their reserves of capital, while also easing some of the lending restrictions that were put into place during the recession.

 Big Banks Lead the Charge

 This surge in bank lending is being led by the country’s big banks. For instance, Wells Fargo has reported auto loan originations of more than $6.2 billion for the first quarter of the year. This is a record for them, and is an increase of 10% over the same time last year and more than 25% over the fourth quarter of 2011.

 According to Experian Automotive, most of these loans are subprime, riskier loans. The loans being approved are more long-term, and the banks are decreasing interest rates, both of which help to keep auto loan payments lower.

 Chase Auto Finance, the country’s second largest auto lender, reported loan originations of $5.8 billion for the quarter, which is an increase of 21 percent.  And, Capital One Auto Finance has also reported a double-digit increase in auto loan originations for the quarter.

 What all this means is that right now looks to be the best time to go loan shopping if you’re in the market for a new car. Rates really can’t get much lower than they are now and, since banks are offering more loans of longer terms, you can negotiate to keep your payments as low as possible, making the loan as affordable as possible.