Auto loan rates are down, and financing is easier to get for buyers with bad credit

Car keys on loan application

This story has been updated. Click here to see a more recent version Auto loans are cheaper and easer for every buyer this spring.

It was tough for buyers with less-than-perfect credit to get an auto loan during the recession.

Even after the recession ended, many economists and auto-industry analysts said credit requirements stayed too strict for too long, dampening many borrowers’ ability to buy a new car or truck.

But prospects are improving for subprime borrowers – it’s not only getting easier to get a car loan but to qualify for a better interest rate, too.

Credit data expert Experian Automotive says that sharply declining repossession rates in the first part of 2011 are giving lenders confidence that auto-loan defaults, spurred by the recession, are leveling out.

In the first quarter this year, 30-day delinquencies were down almost 8%, said Experian, and the total balance of auto-loan delinquencies was down $2.3 billion compared with the same period in 2010.

That, as well as a big effort on the part of car companies such as General Motors and Chrysler to expand the availability of subprime loans from their “in-house” lending units, means it’s getting significantly easier for those with nonprime credit (score of 620 to 679) and subprime credit (score of 550 to 619) to obtain an auto loan.

That’s one of the reasons that a dealership’s finance manager can often offer the best deals on bad-credit car loans.

Lending to auto buyers with nonprime scores was up 7.8% in the first quarter, and subprime loans increased by 8.5%, Experian says.

Even more helpful, the average credit score for all auto loans was down a significant 10 points to 766 – not far from the average loan score of 753 just before the recession.

Meanwhile, interest rates for nonprime and subprime auto loans also are declining.

In the first quarter last year, the average annual percentage rate (APR) for subprime auto loans was 10.8%.

This year, the APR on subprime loans was down to 10.38%. Nonprime auto loan rates dropped almost a full point, from 7.57% in 2010 to 6.76% this year.

Click here to compare the best auto loan rates from dozens of lenders.

Our use our auto loan calculator to see what the monthly payments would be for any interest rate and deal.

Experian summarized by saying that “credit continues to loosen” on auto loans and average credit scores needed to qualify for loans at all credit-rating levels continues to decrease.

The auto loan rates for subprime buyers that had reached nosebleed heights during the recession are starting to return to more acceptable levels that make monthly payments more manageable for buyers with less-than-perfect credit.

This is true of financing terms for both new and used vehicles.

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