American Auto Loan Delinquency Rates Fall Again in Q2 2011

Recent news from BusinessWeek shows American auto loan delinquency rates continuing to drop, which is good news for consumers and families who want to make an upgrade and shop for new or used vehicles at a local dealer’s lot. The lower delinquency numbers means lenders are still making loans, and borrowers are still being able to meet their monthly payments. The delinquency rate has been dropping for several quarters, but now new numbers show additional progress through the first half of the year, with less Americans falling behind on monthly payments or getting their cars towed by repossession staff.

Before this news came out, some economists anticipated that auto loans would continue to improve. Some analysts contend that because vehicles are easier to repossess than some other kinds of assets, households tend to make their car loan payments a high priority. But one other reason for easier auto lending is something that BusinessWeek mentioned prominently: low interest rates help grease the wheels for any kind of borrowing situation. The question is how long low interest rates will last, and this is where it benefits consumers to pay attention.

With the Federal Reserve slashing the prime lending rate to near zero over a series of years, the past few years have meant extremely low interest rates for the average loan. However, because car loan rates tend to be much higher than mortgage rates, some loans made by dealers still have interest rates of up to 8-10% more. One way that new car buyers get around this is by taking advantage of factory-direct financing offers, where they can sometimes get near 0% financing as part of an overall incentive package, a set of concessions that the manufacturer offers to the market. Without these factory-direct deals, for example, in many pre-owned car loans, the borrower has to really shop around and negotiate a good low interest rate for their loan, or they will end up paying hundreds more dollars in debt over time.

Even with low interest rates, it makes sense to seek out the best auto financing for your wallet. In the future, if interest rates start to climb again, it will be even more important to know how to find affordable auto loans, so think about how market interest rates determine your best deals when you look for another car.