Whether you’re buying a car or borrowing for college, no matter what the loan is for, for the lenders it all comes down to one word: Risk. They examine not only to your credit history, but the history of everybody in your credit score, and how the entire loan sector is behaving, before you get a loan, and they do it constantly. And, just recently, the auto loan sector made itself very, very appealing to lenders.
Simply put, auto loans are at their lowest default rates in more than a decade. They’re so low, in fact, that they’re more of a rounding error than an actual number; just 0.85% of all auto loans were in default, according to the data. That’s even better than it looks; it’s roughly a 10% drop from last year’s number, which was just 0.95% itself. For a little contrast, the default rates for credit cards was 2.88%, a record low itself.
In fact, default rates are better now than during the boom times of 2005, the former high watermark of vehicle sales. While it can’t be said for certain that this is the lowest default rate we’ve seen, as annualized data collection only goes back to 2001, it’s safe to say that this is one of the lowest default rates the industry has seen since … well, likely since the auto loan was created in the first place.
Obviously, it’s good news for lenders hoping to make their money back. But what does this means for consumers? And how might it affect your chances at securing an auto loan?
The short answer is that it makes what the financial industry already saw as a sure thing something even surer. It’s been easier lately to secure an auto loan, even if you don’t have perfect credit, partially due to the fact that both auto loan and larger economic data indicates that auto loans are the most likely to get paid on time and in full. But an ongoing decrease in default rates is good for consumers for a number of reasons.
The key one is that it proves that auto loans are low-risk and the techniques and strategies the financial industry uses to limit that risk work. That’s not a minor thing; as you might guess, lenders love to hear that if they issue you a loan, you’re going to pay it back.
It’s also good news because it encourages competition in the marketplace; a loan with a high rate of return and low risk means that more and more lenders, not just the finance arms of auto manufacturers, will get into the market. That makes it both easier for anyone to find an auto loan and also easier to find a better auto loan: Competition drives down interest rates and fees as lenders compete for your business.
In short, what the data tells you as a consumer is simple. If you’re looking to buy a car, now is almost certainly the time.