Even riskier borrowers can get a car loan

Many of us use loan facilities to purchase or lease a new automobile. Lower borrowing rates from the Federal Reserve, competition among auto lending institutions and slow growth of the economy are creating a riskier environment reminiscent of the recent financial crisis. Banks and other institutions are willing to take additional risks to lend you money to buy or lease a vehicle. This is known as loosening of standards for car loans in the industry. To many riskier borrower loans are known as subprime auto loans and more and more banks and other institutions are entering into the fray.

In a way it is good for the borrower. However, it may cost more to borrow in terms of interest rates. Riskier customers may have to pay more to borrow. Loose auto lending practices have resulting in more defaults creating another headache for banks and other lenders. Experian, one of three main credit bureaus reports that the average loss on a defaulted auto loan increased from $7,400 in last year to $8,500 for the first three months of this year. Borrowing facilities at any cost may not last long. With the Fed’s tightening easy money, it may become difficult to obtain car loans and may cost more.