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Winners and losers

Auto loans

When the Federal Reserve meets, we all have questions: What does it mean to me? Will I be able to get a cheaper car loan when I replace my clunker? Bankrate is here to help. We've looked at five categories -- mortgages, home equity loans, auto loans, credit cards and certificates of deposit -- to determine if the Fed's moves made you a winner or a loser. Here's a look at auto loans:

 Winner: Auto loan shoppers with good credit
 Loser: Auto loan shoppers with poor credit

Borrowers hoping for a rock-bottom rate on an auto loan as a result of the Federal Open Market Committee cutting the federal funds rate by at least 75 basis points today may find themselves disappointed. Auto loan interest rates probably won't budge.

"Auto loan rates don't move around a whole lot, particularly those offered by banks and credit unions," says Greg McBride, senior financial analyst at Bankrate.com.

"When the Fed cut rates from 5 percent to 4 percent, that was more significant to the rates that borrowers were seeing than it will be when the Fed cuts the federal funds rate below the 1 percent mark," he says.

Plus, the credit crunch has settled in for the winter. For borrowers, that means easy financing is out, good credit scores and large down payments are in. That trend is unlikely to change in the near future.

"The tighter underwriting guidelines are here to stay for the foreseeable future; we're not going back to the days when anybody that could fog a mirror could get a loan," says McBride.

Borrowers with good credit and a sizable down payment won't find the actions taken by the Federal Open Market Committee much help on the interest rate front, but financing is still available.

Those with poor credit, on the other hand, may have some trouble getting a bank to lend them money.

According to Mike Celuch, chief financial officer of Paragon Federal Credit Union, credit scores somewhere below the lower 600s on the FICO scale may find themselves shut out -- or, in the best case, saddled with a high interest rate.

"I think it's going to be a function of the rate and so forth -- they may be able to qualify below that, but what kind of rate they'll get depends," Celuch says.

Still, shoppers with good credit scores shouldn't have a problem. "In the mid-700s they should be fine," he says.

Check out this Bankrate calculator to determine whether a new or used car will be best for you.

 Take action

Take serious steps to clean up your credit if financing a car may be in your future. That includes paying down debt and fixing mistakes on your credit report. Lenders are scrutinizing shoppers' debt-to-income ratios much more closely than in the past few years. With unemployment figures rising and consumer confidence plummeting, banks are wary of lending to borrowers who may not be able to repay.

"The lending business has generally tightened their standards, so I think people with weaker credit are at greater risk of not even being able to secure a loan today than they were many months ago or a year ago. I don't see that changing anytime soon," says Gary Miller, CEO of FirstAgain.com.

-- Posted: Dec. 16, 2008

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