Summer's Coming and Car Loans Won't Be Easy

The summer buying season is almost here. Will consumers find it easier to get a car loan? Detroit Free Press columnist Susan Tompor shares her perspective. Credit is slightly looser than it was last year but not exactly flowing. Car dealers and others will tell you that many consumers will find getting a loan to be tricky. But the securities market for bonds backed by auto loans and leases has been gaining steam -- which means more money becoming available -- despite concerns in recent weeks about global economic growth. Jeff Schuster, executive director of global automotive forecasting at J.D. Power and Associates in Troy, said car and truck sales for 2010 will be greatly influenced by how much credit loosens up. He said the situation is improving but has a ways to go. "It may be easier to get a loan maybe later in the year than it is now," Schuster said. Consumers who plan to try to borrow in the near future need to make sure they are paying their bills on time and should aim now to pay off credit cards, especially if they're carrying a large amount of debt in relation to their line of credit, said Maxine Sweet, vice president of public education for Experian. Experian data show the average credit score in metro Detroit this year is 745, down from 755 in 2007 and slightly lower than the U.S. average of 749 on Experian's VantageScore range of 501-990. That means a score in the 700 range is like a C grade. If your score is above 900, your credit history is an A -- and you can pretty much write your own ticket for easier credit and lower-priced loans. In general, if you have $10,000 in available credit card lines, it is better for your credit score if you owe $3,000 rather than $4,000 or more. On the plus side: Consumer loan delinquencies did fall in eight of 11 loan categories in the fourth quarter of 2009, marking the second quarter in a row of broad-based improvement, according to the American Bankers Association's Consumer Credit Delinquency Bulletin. But on the downside: Home equity loan delinquencies hit another record. And if you think the housing crisis didn't hurt car sales, think again. "Without housing equity to tap, and foreclosures leaving consumers even less creditworthy, it makes selling cars more difficult," Swonk said. J.D. Power is forecasting sales of 11.8 million cars and light trucks in 2010 vs. 10.4 million cars and light trucks sold in 2009. Consumers should be able to buy cars, Schuster said, because leasing is more available than it was a year ago, the economy has gradually improved and drivers may see better trade-in numbers now. After holding onto their cars longer, Schuster noted that many consumers may not owe as much on their cars as they did a year ago. And consumers may not be as upside-down on car loans -- meaning they won't owe far more than the old car is worth. Lately, the average trade-in car or truck is 6 years old, according to J.D. Power, compared with 5.4 years in the spring of 2007. Last August -- during cash-for-clunkers -- the average trade-in vehicle was 10 years old. But then there's that credit issue. "The primary hurdle is credit," Swonk said. Even now, Swonk said, "auto buying is heavily concentrated in the highest-income households, buying more loaded vehicles, as they are the only ones who can qualify for current lease and credit deals, or can pay cash."