It looks like banks' improving economic outlook and desire to boost profits is turning a hair dryer on the car loan credit freeze. The Associated Press is reporting car loan approval rates are rising, especially for borrowers with higher credit scores:
"The loan approval rate for customers with the highest credit scores was 90 percent in June after sliding to 70 percent in late 2008 during the recession. It's this group that's taking advantage of the widely advertised zero-percent financing deals.
"For the majority of consumers with middle-tier credit, in the range of 620 to 750, loan approvals jumped 12 percentage points in the past year to above 82 percent, says CNW Marketing Research of Brandon, Ore."
Subprime approvals are rising, too, but are still pathetically low by historic standards:
"Historically, the approval rate for subprime borrowers -- those with scores below 620 -- ran about 60 percent. Last year, the rate fell to 5 percent. Now, it's running at 9 percent."
Overall, easing in the car loan market is great news for those in the market for a new car, who will find financing their purchase easier, and the American economy as a whole. The auto industry provides jobs to 1.7 million workers in the U.S. and accounts for up to 3.5 percent of the U.S. GDP, so good news for them is, by and large, good news for us.
My one worry is that making credit too easy to get will encourage people to buy more car than they need. High levels of auto loan debt are closely linked with bankruptcy filings, which are rising as Americans continue to struggle with the debts built up during the credit bubble and subsequent recession. While access to needed car loans is good, my hope is that we've learned something about the debt load American families can safely handle.
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