auto

Consumers find better rates on car loans

Tara Baukus MelloThings are getting easier for consumers who want to buy a car, with lenders offering lower interest rates on car loans and allowing larger loan amounts, according to the latest data by Experian Automotive, which compared car loan activity in the fourth quarter 2012 to the same period in 2011.

The more favorable lending meant that the average new-car loan was $26,691, a $272 increase over the same time period in 2011. The average used-car loan was $17,629, a $239 increase from 2011.

Credit scores for both new and used car loans have been steadily dropping since the fourth quarter of 2009. Average credit scores for new-car loan applicants were 755, down six points from the fourth quarter of 2011 and 20 points since the fourth quarter of 2009. Credit scores for used-car loan applicants were at 665 in Q4 2012, a five-point decline from the same period in 2011.

There's good news for consumers with the worst credit ratings, as lending has increased by 9.7 percent to car buyers in the total subprime market for new-car financing to 24.77 percent in the fourth quarter of 2012, up from 22.59 percent in the same quarter in 2011. This means more lenders were servicing the subprime market. The total subprime market for used-car financing increased by 3.4 percent, period over period, to 55.4 percent from 53.58 percent.

Loosening credit has also resulted in falling car loan interest rates. New-car buyers in the fourth quarter 2012 got a 4.36 percent interest rate on average compared to 4.52 percent in the same quarter of 2011. On the used-car side, interest rates dropped from 8.67 percent in the fourth quarter of 2011 to 8.48 percent in same quarter in 2012. While the interest rate decline was relatively small, new-car buyers also experienced a drop in their monthly payments due to extended loan terms, which jumped from 63 months to 65 months, quarter over quarter. Used car loan terms remained flat at 60 months. The average new-car monthly payment went from $468 in the fourth quarter 2011 to $460 in the fourth quarter of 2012, while the average used-car monthly payment remained essentially flat at $348, compared to $349.

The combination of historically high car loan terms with declining car loan interest rates is a recipe for car buyers to replace their aging car with a new or newer model. If you're getting ready to buy a car, read "10 tips for buying the right car in 2013."

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

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Tara Baukus Mello

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