Lenders are requiring lower credit scores to get an auto loan, as the average credit score for shoppers who were approved for a new car loan continues to fall. In December, the average FICO score dropped four points from 706 to 702 when compared to November, according to CNW Research. This is down almost 25 points when compared to a year ago, when the average score in December 2009 was 726.5 for new car loan shoppers.
More car shoppers with lower credit scores are also being approved for new vehicle auto loans. In December, CNW found that more than 11 percent of new car buyers had a FICO score of 670 or less. In December 2009, only 7.8 percent of these same buyers were approved for a new car loan.
The auto loan approval rate for subprime buyers hit a year-long high of 8.5 percent in December. Subprime buyers have FICO scores of less than 620. This approval rate stayed in the 5 percent range for the first half of 2010. CNW points out that this number is still quite low when comparing subprime auto loan approvals to a few years ago. In August 2006, more than 46 percent of subprime shoppers were approved for a car loan.
The trend of more consumers being approved for auto loans with lower credit scores is very similar to what credit reporting agency Experian announced this week. Experian Automotive found that the number of new car loans that went to subprime shoppers in the third quarter increased by 12.7 percent compared to the third quarter of 2009.
Dealerships are doing a better job of letting consumers know that financing is available, no matter what your credit score is. About a year ago, CNW Research found that about 33 percent of consumers said they didn’t even bother applying for an auto loan for a new car because they assumed they wouldn’t be approved because of the credit crunch and tougher lender criteria. Only 9 percent of consumers now say they probably won’t be approved for a car loan.