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Less Than 5% of Low Credit Score Borrowers Get Car Loan

By Sally Maison
Published: Thursday, January 28th, 2010

As the United States economy continues to recover and as many consumers begin to think that they need to have their car replaced, industry analysts believe car sales will go up during the first quarter of 2010. However, creditors still refuse to lend to low credit score borrowers, prompting many to seek ways in order to improve their ratings.

Less Than 5% of Low Credit Score Borrowers Get Car LoanConsumers did not buy cars last year simply because there were no car loans available for them. If there is, it comes with an outrageously high interest rate. Those high interest rates instantly made potential buyers back off. But now that the US is showing some signs of progress, consumers are wondering how tough it would be to get a new car.

According to industry analyst John Murphy, it will be tougher than it was three years ago but it will not be as difficult as it was during the first quarter of last year. He said car sales will see an increase because consumers are more confident now that they can afford car loans. Additionally, many motorists believe they need to have their units replaced.

Murphy believes car financers will become easier on borrowers this year. Last year, consumers knew that they have to get new cars but they could not get a car loan. Jim Glassman, a senior economist for a banking firm, said people were also frozen during the credit freeze. He believes sales will go up this year because the desire of consumers to buy cars was pent-up during that freeze.

However, analysts warn that not all consumers who were not able to get financing last year will have a better luck in 2010. Only those who have very solid credit ratings can merit the trust of creditors these days.
CNW Marketing Research, an industry data gatherer, showed that borrowers who have credit scores of 750 and above get approved for financing 90 percent of the time. Only 60 percent of buyers from that credit score range were able to get auto financing last year.

Buyers whose credit ratings are below 750 but above subprime now qualify for car loans 75 percent to 85 percent of the time. During the worst points of the economic crisis, only 50 percent of good to OK credit score buyers succeeded in their application for car loans.

However, subprime borrowers may have to wait for better economic climate before being able to avail car financing. Last year, 8 percent of low credit score borrowers were able to get car loans. Now, only 4.8 percent of them are able to buy new cars.

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