If it’s high, Now is a Good Time to Borrow

In this crazy lending market, interest rates have remained at historic lows but all the banks have gotten so picky that most requests for loans go unanswered.  There is an old saying that goes, “If you don’t need the money, you can borrow all you want”.

Well, a year after the global freeze in the credit markets that caused massive government intervention (aka interference) interest rates continue to remain at historic lows.

That’s great for people with good credit.  If not, it seems like you could be wasting your time.  Credit has gotten to be so tight that if you are willing to be interrogated for several days, and can document your entire life story, (video and pictures help) along with signed letters from every institution that you have done business with, you might be considered for a loan.  And from all we can see, it’s going to be around for a while.

Bank and financial institutions are on the defensive posturing stage.  After many completely blew lending on the mortgage side, it has had a ripple effect in all other areas of lending from home purchase, to auto, to personal loans, and any other mode of credit issuance that was common in the past.  Not now.  No segment of borrowers has been spared. During the housing boom five years ago, 7 of 10 applications were approved.  Today is 5 in 10.  With credit card companies getting tighter with credit, consumer credit carddebt declined by $6.1 billion in July.

For perspective, big banks are not risk averse.  That’s common sense, right?  Rather, their reluctance to lend has to reflect the fact that they must conserve cash to absorb billions in losses that are still expected to occur from bad loans that were made before our financial meltdown last September of 08. FDIC-insured banks lost a total of $3.7 billion in the second quarter, dragged down by growing number of bad loans.  They set aside nearly $67 billion in the second quarter in anticipation of future losses from all those wonderful decisions that they made for years leading up to the crash.

Oh, there are a lot of other reasons, such as the lack of ability to pool loans into securities, (ABS = auto back securities) for sale to investors, or securitization. Lehman brothers collapse pretty much dried up this market outlet but there are signs of opportunity that crop up from time to time.  With consumers ratcheting back their borrowing and banks getting tougher with their lending criteria, rates will remain low for those who have good credit.  If you can stand the pain, you will benefit from the gain.

What has been your experience?  We would love to hear what you are seeing from your point of view.

Here’s to getting this economy back on track.

In the second quarter, 0.80 percent of car loans were 60 to 89 days past due, up from 0.66 percent during the same period in 2008.  Thirty-day delinquencies rose 14.6 percent in the second quarter to 3.06 percent, up from 2.67 percent the previous year.   Combined, 30- and 60-day delinquencies amount to $25.5 billion in loans at risk. 

Why is this significant?  That’s because it prompts lenders to tighten their lending criteria.  The result is that it pushes many consumers out of the market altogether.  Sure some buy used but many just drop the purchase to wait out the strict requirements being applied.
 
Michigan was among only three states to show a reduction in 30-day delinquencies, according to the study’s findings. The other two were Alaska and Nebraska.
 
At some point the lending markets has to turn so that pent-up demand eases.  However, for right now, it’s a tough market and consumers are not getting much of a break on the cost of financing, that is unless you’ve got a high credit score.  In the meantime, we all wait. 

For the balance of the year SAAR (Seasonally Adjusted Annual Rate) figures will probably close the year out at just under 10 million per month annualized.  Next year by February, we should see things starting to break free.  Let’s hope that prediction holds!

“American consumers and workers were the clear winners thanks to Cash for Clunkers program,” said Ray LaHood, U.S. transportation secretary. “Manufacturing plants have added shifts and recalled workers. Moribund (or bare) showrooms were brought back to life and consumers bought fuel-efficient cars that will save them money and improve the environment.”

Overall, rebate applications worth $2.877 billion were submitted by the Tuesday deadline. This covered 690,114 applications.
 
Top 10 Most Purchased Autos
Of the top 10 most purchased vehicles under the Cash for Clunkers program, only five automakers made the cut. This includes Toyota, Honda, Ford, Hyundai and Nissan. Toyota and Honda each had three models make the most purchased list, while Ford was close behind with two. Nissan and Hyundai meanwhile each had one model making the most popular Cash for Clunkers purchases.

Top Most Traded In Autos
The Ford Explorer 4WD and the Ford F-150 Pickup 2WD were the significant leaders in what was traded in.  Of the vehicles traded-in, 84 percent were trucks with 59 percent of customers purchasing passenger cars. The average trade-in mileage was 15.8 mpg, which leads to an overall increase of 9.2 mpg, or 58 percent climb, as the average new vehicle purchased receives 24.9 mpg.
 
Offering preliminary insight into the impact of the Clunkers program will have on the economy, the White House Council of Economic Advisers predicted the program will ramp up economic growth in the third quarter by about 0.3 to 0.4 percent at an annual rate due to the sales. The gross domestic product will be sustained thanks to increased vehicle production and to fulfill inventory requirements, the group indicated. Furthermore, an excepted 42,000 jobs will be created or saved.

New-Vehicle Manufacturer Percentages:
Toyota: 19.4 percent
General Motors: 17.6 percent
Ford: 14.4 percent
Honda: 13 percent
Nissan: 8.7 percent
Hyundai: 7.2 percent
Chrysler: 6.6 percent

There is, as we’ve mentioned many times, a large gap in opinions of just how successful the program was.  However, what it did do is create an artificial spike in consumer spending.  If you think about it, the conclusion that was most promoted by the non-objective major newscasters who thought of this as a good idea, was to proclaim its success. 

With the direct lending markets still in mourning from the failed practices of many banks mortgage fiasco, a huge market still exists for auto loans and refinancing for everyone who does not have a 720+ FICO score.  In the meantime, and still a “nightmare” is the fact that dealerships are still waiting for their money, and most have stopped junking the trade-ins in fear of Uncle Sam failing to reimburse them under the program.  Time will tell.  What do you think?  Good or bad, let us know.

It is interesting that no media analysis has ever told the tale of the “unintended consequences” of the destruction of more than a quarter million used cars, especially older models that would have gone to charity or been sold on the private party market.   It’s an obvious benefit to the new dealers, that’s for sure.  This creates the supply shortage, especially for lower prices cars resulting in the remaining cars left on dealer lots to increase the sales price.  Since demand has remained strong, at least for the first few days and possibly weeks, it would have forced the average prices to increase because the least expensive cars and trucks were being removed from the overall inventory available.

Owners of vehicles that didn’t qualify for the clunker program reverted to their original intent and sold the cars and trucks private party, according to Art Spinella, president of CNW Research.   Specifically, private used-vehicle sales are expected to total 1.214 million in August, a 1.5-percent improvement from a year ago. Meanwhile, franchised dealers are expected to move 1.417 million used units, a 0.5-percent decline, and independents are likely to sell 1.246 million used cars, a 0.4-percent upswing.

Cash for Clunkers affected the new side of the market. According to his analysis, at the mid-point of July, new-vehicle sales were on pace to have a 22.2-percent year-over-year decline.  However, the heavy promotion and coverage of CARS helped to lift new-vehicle sales to 997,572 units for the month, which was down less than 13 percent from July 2008.   The “bounce” in floor traffic at the end of July continued through the first two weeks of August, and this helped multiple areas of the industry, according to Spinella.  First, it drew more ‘lookers’ who weren’t even planning to buy a car or truck. It’s been more than two years since analysts have seen any appreciable increase share of floor traffic consisting of long-term shoppers (those who don’t expect to buy a vehicle for at least a year,) and second, it exposed Cash for Clunker buyers and general consumers to other models, which had a positive overall effect in sales.  There were many benefits for dealerships’ F&I, parts and service operations, as well as for salespeople in general.  I suppose all those who got a subsidy are pleased.

So now what?  Frankly, as it has been observed by others, that dealers have been taking early sales from 2010 expected revenues.  This has driven up prices, while the big 3 have increased production.  What should we expect next?  In my opinion, expect a spiraling drop in sales through the balance of the year, picking up some first quarter 2010.  Shoppers will clearly delay purchases until more signs of a stable economy are seen and their jobs are not threatened.  At some point the auto loan marketplace is going to rebound.  I am looking forward to lenders getting back into the game and providing some service again.

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The study examined five key factors to contribute to satisfaction within the prime retail credit, subprime retail credit and retail leasing segments: provider offerings, credit personnel, application/approval process, termination policy/service and sales representative relationship. Three factors were measured in the floor-planning segment: provider offering; floor-plan support personnel and process/service.

The study was based on responses from more than 2,000 dealer principals who were surveyed between April and May of this year.  

On a 1,000-point scale J.D. Power found:

Prime Retail Credit (down 46 points)
2008: 835
2009: 789

Subprime Retail Credit (down 76 points)
2008: 793
2009: 717

Retail Leasing  (down 79 points)

Floor Planning  (down 90 points)

The retail financing experience account for more than two-thirds of dealer satisfaction. Meanwhile, offerings such as rates account for less than one-third of overall satisfaction.  While recognizing that the past year has been tough for dealers, J.D. Power executives advised, “This indicates an opportunity for lenders to differentiate themselves through service, even though external market forces are driving a more conservative lending approach.”   I just love the “more conservative lending approach,” don’t you?

David Lo, director of financial services as J.D. Power, explained it this way, “Current economic conditions have created something of a ‘perfect storm’ as declines in new-vehicle sales, tightened lending and reduced inventory funds have combined to put extreme stress on dealer business.”

“However, the fundamental principles of service are unchanged. Lenders that focus on prompt application and funding turnaround times, have credit buyers that demonstrate willingness to worth with their clients and have sales representatives who are skilled in relationship management may position themselves to be a lender of choice,” he continued.   This is actually pretty significant.  One of these days lenders will clamor around the dealerships, if not the buying consumers, and be happy to lend money again.  LOL, that sure sounds so funny to me.

This is interesting as well; Basically, the study discovered that higher levels of satisfaction may positively impact the amount of a business a lender receives from a dealer.  For instance, for the lenders in the prime retail segment whose satisfaction scores averaged 712 on a 1,000-point scale, 22 percent of dealers say they “definitely will” increase their business with this organization.

However, of the lenders whose satisfaction scores averaged 886, 46 percent of dealers said they “definitely will” increase business with that lender.  Lo noted, “High-performing lenders tend to close a higher proportion of deals. This is critical right now, and almost more importantly, may serve as a foundation for growth one the market stabilizes.”

Prime Retail Credit

Taking the top spot in the prime retail credit segment was Mercedes-Benz Financial with an index score of 918. Officials said this company performed particularly well in two areas, provider offerings and credit personnel.  The prime retail credit company averages of a few sample lenders are as follows:

Mercedes-Benz Financial: 918
BMW Financial Services: 898
Toyota Financial Services: 873
Audi Financial Services: 838
Honda Financial Services: 831
Wachovia Dealer Services: 814
Ford Credit: 802
Bank of America: 787
Chase Auto Finance: 772
US Bank: 744
Capital One Auto Finance: 732
GMAC: 711
Chrysler Financial: 665

Subprime Retail Credit

Interestingly enough, J.D. Power said that no awards were presented in the subprime retail credit segment due to insufficient market representation.  

The rest of the detail is not that interesting so I won’t go into it.  I don’t know about you but let’s hope that this ‘Perfect Storm’ ends soon.  I’d like to see the supply of financing start to meet the demand of the applicants.  No doubt it will take time but I speak for myself when I say I’m getting a little impatient!

The government of the United States is offering $3,500 and $4,500 vouchers for vehicles traded in toward the purchase of a new car.
Here is a quick overview of the Cash for Clunkers program.
1) Visit the www.CARS.gov for current information about the program.
2) Determine if you qualify for the program and locate a dealer.
3) When you purchase or lease a new vehicle the dealer handles the submission to the NHTSA.
4) NHTSA ensures that your purchase meets all of the requirements.
5) About 10 days later the NHTSA credits the dealer if all requirements were met.

There are several restrictions to the program and it doesn’t last forever.
• New car purchases only (no used vehicles allowed)
• Car must be purchased between July 1, 2009 and November 1, 2009
• No cars older than 25 years
• You must be able to drive your car to the dealership for trade in
For a complete list of restrictions visit www.cashforclunkerfacts.com

Don’t wait. This is a first come first serve program. The funds to the program are limited and it will end before November 1, 2009 once the funds are gone.

Apply at myAutoloan.com to finance your new car purchase.

Online auto financing has become easier to obtain as well as seeking and obtaining helpful information on what your auto financing options can be. The process is fast, convenient and absolutely safe. (Did I say it was Free too?) myAutoloan.com requests and requires you to fill in a single page application form. You will have to give some financial and personal details. These are required for us to understand and match your requirements and repayment ability to our network of lending partners. All the details provided at myAutoloan.com are stored on a secured server and stern steps taken to preserve your confidentiality. Apply for a new auto loan, an auto refinance loan or a used car loan, at myAutoloan.com from either your home or office.

Apply Now
Auto financing through myAutoloan.com is a really user friendly and a cheap way of getting funds for your automobile. Many people apply for dealership financing. However, dealership financing is expensive as they mark up all interest rates. At myAutoloan.com you will get auto financing at low interest rates based upon your credit score. Also the repayment plans from our lender network are flexible with monthly repayments in keeping with your monthly budget. Auto financing is usually for a term ranging from 3-5 years. Auto financing for all manufacturers of automobiles is provided. Go on, give us a try. Check us out first and then bookmark us so that you can consider us next time you need a replacement auto or want to trade up, get your auto loan direct and save a ton of money. Follow us on: Twitter & Facebook

Dealers have been pushing bills in Congress that would undo any changes made by Chrysler or GM in their dealer agreements during their bankruptcies.  One version now has 221 sponsors in the House, more than the 218 it needs to pass, and dealers who back the proposal plan to push the issue with House and Senate members during a lobbying blitz Tuesday, with a House vote possible Wednesday.

“By a unanimous vote, a U.S. House committee has approved a measure that would restore 2,100 dealers either cut or scheduled to be closed by General Motors Corp. and Chrysler Group LLC.  The vote comes amid growing support in the House for the proposal, with more than 200 cosponsors signed on to a similar bill.  Dealers will hold a lobbying event next Tuesday to press for the plan in the House and Senate.  The bill would turn back the clock to before the companies filed for bankruptcy, restoring the 789 dealers cut by Chrysler and 1,300 dealers GM chose to wind down.”

Mark LaNeve, GM’s sales chief, and GM North America head Troy Clarke spent the day criss-crossing Capitol Hill, as did Chrysler Deputy CEO Jim Press.  “In terms of creating a viable, competitive GM on taxpayer dollars, you can’t look in the mirror and say we didn’t have to restructure the dealer body,” LaNeve said. “Everybody acknowledges, even dealers acknowledge, we had too many dealers.”

In addition to reversing the dealer cuts, the bills would throw out the changes GM negotiated with the 4,100 dealers it chose to keep. LaNeve said about half of those dealers had sent letters to lawmakers opposing the dealer bill.  Chrysler said in a statement that the House version of the dealer bill “would jeopardize the viability of the new company.”  The proposal by Michigan Rep. Gary Peters, which was still being circulated among lawmakers, suggested using money returned by banks under the $700-billion financial industry bailout.

I know it’s horrible that people are losing jobs at these dealers but I don’t understand this vote. First, GM/Chrysler are told to “become competitive” but then Congress tries to stop them from taking the steps they feel are necessary to be competitive.

It makes no sense to me, but how about you?  What needs to happen is that our government, who now controls the banking system and the major banks, had better start getting these Taxpayer Owned entities to loan money again.  Is this crazy or what?

Answers to frequently asked questions about refinancing an auto loan.
Q: What is an auto refinance loan?
An auto refinance is a loan that pays off your existing auto loan, similar to a mortgage refinance, but with a much simpler and faster process.  You don’t have all the paperwork, detail, downtime with specialists and appraisers so you can complete the process within days of submitting an application.

Q: How does it work?
It’s very simple. Your new lender pays off your old loan and the title to your vehicle is transferred to your new lender.  You now have a new loan and lender that you begin making payments to.

Q: Why should I refinance my existing auto loan?
Typically, consumers refinance to get a lower interest rate in order to reduce their interest costs, or to lower their monthly payments.  Auto refinance loan rates are at very low historical levels, so our customers are increasingly taking advantage of this by refinancing.  Chances are that your interest rate, even with great credit is higher than what is available today.  Make sure you know that higher interest rates are more expensive and will cost you more over the same time period.   You will be surprised at how simple and easy an auto refinance loan can be.

Q: When should I refinance my existing auto loan?
As with any personal finance decision, it really depends on your individual goals and what you want to accomplish.  It’s different for everyone but the objectives are pretty much the same.  If your goal is to reduce the amount you are paying in interest, you may want to consider an auto refinance loan with the same or reduced term as your existing loan. If your goal is a smaller payment, you may want to consider extending the term remaining on your existing loan, although this may increase the total interest paid over the life of your loans it will give you a cushion in which to work on the short term.

Q: Are there any fees associated with an auto refinance loan?
Typically, the only fees associated with an auto refinance loan are fairly standard transfer of lien holder fees which are usually $4 to $9 and, in some cases, a state re-registration fee of $10 to $70. These estimated fees may vary by lender, state of residence, etc. Be sure to check if your existing lender has any pre-payment fees.  Most do not but it does not hurt to check before hand. This could factor in to your decision to refinance.

Q: How much will I save by refinancing my existing auto loan?
How much you save depends on things such as the remaining balance of your existing loan, the difference between your old interest rate and the new interest rate, the term of your new loan, etc.

Q: Are auto refinance loans growing in popularity?
Yes.  We’ve seen a substantial increase in applications here at myAutoloan.com and the trend continues into this quarter.  Since auto loan interest rates have been at historically low levels, an increasing number of consumers are choosing to refinance their existing auto loans.

Q: What do I need to do to apply for an auto refinance loan through myAutoloan.com?
Simply complete an auto refinance loan request. You’ll typically receive a response within hours, and if approved, you may receive up to four offers from competing lenders. If you’re approved and you accept one of the offers, the lender will take care of the auto refinance process for you.

There you have it – short, sweet and to the point. Hope this helps in your planning and best of luck to all as we push the economy forward.

“As we have discussed before, there are a lot of auto buyers that pay more than they have to pay because they need a car,” says Heather Dietel, Director of Business Development at myAutoloan.com, a licensed auto loan refinancing lender. “If they just had to have transportation and purchased a car with higher rates at the time, they will absolutely be surprised at how much they can save.”  There are a lot of good reasons to consider doing an auto refinance loan so let’s highlight a few of them.

Benefits of Auto Loan Refinancing
The most obvious benefit of refinancing your car loan is to save money on the interest you’re paying. You can also shorten the terms of your loan or reduce your monthly payments. One great benefit of refinancing is to improve your credit.  “When you refinance, it will show up as a car loan that was paid-off in full and on time on your credit report,” Dietel explains. “The new lender pays off your current loan and even though you’re taking out a new loan with the new lender, it will help your credit score.”  Remember to keep your auto refinance loan applications to a one to two-week time period so it won’t negatively affect your credit score.

Whether refinancing will lower your current car loan rate by 10% or 1%, you will still save money, Heather says. On average, consumers can save $60 a month on their car payments and get a 3.8% rate reduction, she says.  “Even if you only get your interest rate dropped 1%, you’ll still lower your monthly auto payment and save hundreds of dollars over the course of your auto loan,” she says. “With that, you can either pay off your loan faster, or invest that money in getting rid of other debt. Remember, the way to get the lowest interest rate and save the most money is to make the auto refinance loan term equal to or shorter than the old loan.”
 
Examples of how much you can save by refinancing:
 
Loan amount:           $30,000
                                 Original loan                      New loan
term:                        60 months                        60 months
interest rate:             12.5%                              7.5%
payment:                  $675                                 $601

monthly savings:  $      74
total savings:         $4,429
 
Loan amount:           $20,000
                                 Original loan                      New loan
term:                        60 months                        54 months
interest rate:             12.5%                              7.5%
payment:                  $450                                $436

monthly savings:       $14
total savings:        $3,434
6 month shorter loan
 
Overall, at whatever level your credit score is at and whatever interest rate you are currently paying on your car loan, refinancing can save you anywhere from several hundred to several thousand dollars over the life of the loan. Check online and your local credit union or bank to see what they offer and to see if you qualify to refinance.

Financial experts tell consumers to check all areas of their monthly budget to see where they can cut, like insurance, groceries, cable bills and phone bills. Your car loan payment is an expense that you can easily reduce by refinancing.