As auto buyers head back into dealerships after a two-year drought, they're being greeted by rock-bottom interest rates on auto loans, eye-popping lease deals and a renewed willingness to lend to people with spotty credit score.
Lenders are on firmer financial footing, helped by government assist and renewed demand for vehicle loans that are packaged and sold as securities, a market that raises cash and allows lenders to write more loans. Buyers, too, are gaining confidence. U.S. auto sales rose 20 percent in February to the highest monthly pace since "money for clunkers" in August 2009.
Earlier this month, General Motors, Chrysler, Ford, Nissan and others have been offering zero percent finance charges rates on auto financing. Luxury makers such as Acura and Cadillac have lease deals with zero percent down. Banks have cut their interest charges terms on auto financing in half.
Here are some reasons for the super deals:
Lower Terms. Buyers are paying an average annual percentage term of 3 percent for new cars financed in February, down from nearly 4 percent in the same month a year ago, says automobile due dilligence site Edmunds.com. That's one of the lowest terms since before the economic downturn.
Financial institutions, Credit score Unions and Automotive Financing Financing options are in ferocious competition to loan you cash. While credit unions and finance companies once offered the lowest interest rates, lenders now have more competitive financing as well.
More Vehicle Loans for Subprime Borrowers. Unlike much of 2010, when the vehicle loan market was open mainly to buyers with the best credit, people with weak credit histories now are having an easier time searching loans because of the competitive market. The percentage of new-automobile auto loans going to subprime buyers - generally those with credit report score scores below 680 - rose 18 percent in the last three months of 2010 over the same amount the year before, according to Experian, one of the three credit reporting agencies in the US.
Better Lease Deals. Leasing is making a comeback. That's a boon for people seeking smaller monthly auto payments on a vehicle or truck. Leases made up a quarter of new-vehicle transactions in February, Edmunds says. That was the highest single month for leasing since November 2005.
Generally, leasing means you pay less per month than you would on a auto loan financing. The reason: You're only paying off the length the auto will depreciate before you turn it in. When you are purchasing, you're paying for the whole auto, plus interest charges.
Typically, about 20 percent of new cars are leased. But the bottom fell out of that market at the beginning of the downturn because there were too almost all used cars and not enough demand for cars coming off lease. Leasing fell to 16 percent of the market in 2009.
But as the recession progressed, used cars became scarce as people looked for cheaper wheels. That caused used vehicle prices to rise. Now, banks are more interested to take on a lease, knowing the vehicle will be worth something when the lease is up.
Finance charges rates are likely to stay low this year, as the economy continues to recover. Who will aid keep decision attractive. Competition also remains furious among vehicle financing options. GM said this month that it expects to dial back on lease deals and other incentives as the year goes on.
Author Resource:
OpenRoad Lending is an online lender with a consumer friendly website providing auto loan solutions to consumers in the process of purchasing a vehicle or looking for a auto refinance loan. Visit the website at for more information about how easy it is to get an auto loan .
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